5.

PROFILE ON GROUNDNUT OIL

5-2

TABLE OF CONTENTS
PAGE
I.

SUMMARY

5-3

II.

PRODUCT DESCRIPTION & APPLICATION

5-3

III.

MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

5-4
5-4
5-7

IV.

MATERIALS AND INPUTS

A. RAW & AUXILIARY MATERIALS
B. UTILITIES

5-8
5-8
5-8

V.

TECHNOLOGY & ENGINEERING

5-9

A. TECHNOLOGY
B. ENGINEERING

5-9
5-11

VI.

MANPOWER & TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

5-14
5-14
5-15

VII.

FINANCIAL ANLYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

5-15
5-15
5-16
5-17
5-19

I.

SUMMARY

This profile envisages the establishment of a plant for the production of groundnut oil with a
capacity of 500 tonnes

per annum. The plant will also produce 500 tonnes of expeller cake

per annum that can be used for animal feed as by product.

5-3
The basic raw material required is dried groundnut, which is found locally.
The present demand for the proposed product is estimated at 1,972 tonnes per annum. The
demand is expected to reach at 5,084 tonnes by the year 2022.
The plant will create employment opportunities for 32 persons.
The total investment requirement is estimated at Birr 10.57 million, out of which Birr 3
million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 17.01% and a net
present value (NPV) of Birr 8.60 million, discounted at 8.5%.
The plant will have a backward linkage effect with the agricultural sector. The establishment of
such factory will have a foreign exchange saving effect to the country by substituting the
current imports.
II.

PRODUCT DESCRIPTION AND APPLICATION

Ground nut kernel contains 50-55% of oil. The oil obtained from the kernel is yellow to
greenish yellow in colour with chief constituents of glycerides of oleic and linoleic acids with
lesser amounts of the glycerides of palmitic, stearic, arachidic, behenic, and lignoceric acid.
The oil is used as a substitute for olive oil and other edible oils, soaps, salad and cooking oil,
mayonnaise and margarine. The meal is an important component of feeds for poultry and cattle.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STDY

1.

Past Supply and Present Demand

5-4

Groundnut oil is used for cooking food. The Country's requirement of groundnut oil is met
through import and domestic production. However, the market is quite dominated by imports.
In 2000-2006 the highest share that could be achieved by domestic manufacturers was 26% in
year 2003, while the average for the same period was around 11%. Despite availability of raw
materials like groundnut, linseed, niggerseed, sesame, rapeseed, cotton seed in the country,
packed edible oil of foreign sources are flooding the market (see Table 3.1).
Table 3.1
SUPPLY OF EDIBLE OIL (TONNES )
Year
Domestic
2000
6,579
2001
6,637
2002
8,329
2003
7,999
2004
8,027
2005
6,931
2006
4,882
Average
7,054
Source :- Customs Authority for import.

Import
70,789
24,785
34,196
22,283
121,812
82,014
69,473
60,764

Total
77,368
31,422
42,525
30,276
129,839
88,945
74,355
67,818

CSA, Statistical Abstract for domestic production.

Table 3.1 reveals that domestic production of edible oil was fluctuating around a mean figure of
7054 tonnes. On the other hand import of edible oil has shown a substantial increase during the
recent three years, i.e., between year 2004 and 2006. The import level which was in the range
of 22,283 tonnes and 34,196 tonnes during the year 2001- 2003 has increased to 121,812
tonnes, 82,2014 tonnes and 69,473 tonnes during 2004 , 2005 and 2006 , respectively.
Total apparent consumption (local and imported) during the past seven years ranged from
30,276 tonnes (2003) to 129,839 tonnes (2004). The mean apparent consumption in those years
was 67,818 tonnes and this amount is considered to represent current effective demand for the
year 2006. Moreover, in order to estimate the present ( 2008) demand it is assumed that demand
for the product grows at a rate of 4% which is equivalent to the growth of population.
Accordingly, taking the year 2006 apparent consumption as a base and applying a growth rate

5-5
of 4% the current unsatisfied demand which excludes local production is estimated at 65,722
tonnes.
The data obtained for domestic production is in aggregate which does not show by type of the
oil seeds. On the other hand, the import statistics reveals that of the total quaintly of edible oil
imported to the country about 70% is soya bean and palm oil and about 18% linseed and
vegetable oils. The remaining 12% is the share of ground nut, sunflower, sesame and the like.
Hence, only 3% of the total unsatisfied demand is assumed to be the current unsatisfied demand
for ground nut oil. Accordingly, current unsatisfied demand for ground nut oil is calculated at
1,972 tonnes.
2.

Projected Demand

The demand for ground nut oil or edible oil is dependent on population and income. As a
product targeted to a segment of the market ground nut oil will be more dependent on income.
Thus the demand for ground nut oil is projected based on 7% annual growth rate attained in
gross domestic product (GDP) in 2000-2006 The projected demand for ground nut oil is
presented in Table 3.2.

5-6
Table 3.2
PROJECTED UNSATISFIED DEMAND FOR GROUNDNUT OIL (TONNES)

Projected
Year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

3.

Demand
2,110
2,257
2,415
2,584
2,765
2,959
3,166
3,388
3,625
3,879
4,150
4,441

Pricing and Distribution

The price for one liter locally manufactured edible oil in Addis Ababa is Birr 13, while
imported brands are sold at Birr 15. Taking into account mark-ups by distributors and retailers
the factory gate price recommended for the new project is Birr 11/litre.
Edible oil distribution is becoming easy due to the use of tight and attractive packaging
materials. The envisaged project can appoint agents in the major market areas of the country.

5-7
B.

PLNAT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the market study the annual processing capacity of the envisaged plant is 500 tonnes
(546,488 lt.) of edible oil assuming that the plant covers 20% of the market share of year
2012(Two years construction period and three years full capacity attainment period), based on
300 working days and a single shift of 8 hours per day.
2.

Production Programme

At the initial stage of the production period, the plant would require some years to penetrate
into the market and develop production skill. Therefore, in the first, second and third year of
production, the capacity utilization rate will be 70%, 85% and 95%, respectively. In the fourth
year and thereafter, full capacity (100%) production shall be attained. Table 3.3 shows the
production programme of the project.
Table 3.3
PRODUCTION PROGRAMME (TONNES)
Sr.
No.
1.
2.
3.

Product
1
Edible oil
Expeller Cake*
Capacity Utilization (%)

350
350
70

Production year
2
3
425
425
85

475
475
95

4-10
500
500
100

*The plant generates income by the sale of the expeller cake for animal feed. By taking the
price of Birr 1000 per ton of expeller cake, the envisaged plant gets Birr 1,000,,000
annually.

IV.

MATERIALS AND INPUTS

5-8

A.

RAW AND AUXILARY MATERIALS

The principal raw material required for the production of groundnut oil is groundnut seed,
which are produced locally in different regions such as Oromia, Benishangul, SNNPRS, etc.
The seed gives 44.5-50% oil, 50-55% meal. All the other raw materials are also found locally.
The raw material, refining chemicals and packing materials requirement of the envisaged plant
is indicated in Table 4.1. The total annual cost of raw and auxiliary materials is estimated to be
Birr 10,059,620.
Table 4.1
RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST
(AT FULL CAPACITY)
Sr.
No.
1.
2.
3.
5.

Raw & Auxiliary

Materials
Shelled ground nut
Caustic Soda
Bleaching earth
**Barrel (200 lt.)
Grand Total

Unit of
Meas.
Tonnes
Kg
Tones
Pcs.

Qty.
FC
1250
2380
11.09
92

Cost (000 Birr)

LC
Total
10,000
19.04
22.18
18.4
10,059.62

10,000
19.04
22.18
18.4
10,059.62

** The drum number is calculated by assuming that the drum is recyclable and 10% loss
annually.
B.

UTILITIES

The major utilities of the envisaged project are electricity, furnace oil and water. The annual
consumption and cost of utilities is indicated in Table 4.2. The total annual cost of utilities is
estimated at Birr 573,400.

5-9
Table 4.2
UTILITIES REQUIREMENT AND COST
Sr.
No.
1.
2.
3.

Utility
Electricity
Furnace oil
Water
Total

Unit of

Qty.

Unit

Cost

Measure
kWh
lt.
m3

250,000
50,000
50,000

price
0.4736
5.84
3.25

( in Birr)
118,400
292,500
162,500
573,400

V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Edible oil technology can be grouped into two: mechanical pressing and solvent extraction.
Sometimes the latter compliments the former. For oilseeds with high oil content such as
ground nut, first mechanical pressing will be applied and over 85% of the oil will be extracted.
The remaining oil in the expeller cake will then be extracted with solvent. For some other
oilseed with low oil content, solvent extraction is generally considered as the best alternative.
However, the initial investment cost of solvent extraction is much higher than mechanical
pressing. In addition, solvent extraction is more appropriate for large scale processing than
small scale edible oil plants. Therefore, in this study the mechanical pressing technology has
been selected.
Ground nut oil production process, based on mechanical pressing technology, can be grouped
into three stages: seed preparation, pressing and crude oil refining.
The seed requires undergoing a thorough cleaning process to remove sand, stalk, plant debris
and any other foreign matters by rotary or table sieve. Usually, the screening process is assisted
by air aspiration unit. After cleaning, the seeds have to be prepared for efficient oil recovery by

5-10
pressing. The stages involved are size reduction of the seeds by breaking them and then
conditioning the seeds by adjusting their moisture content and temperature, while keeping the
seeds hot (say 90-95c) for a period of 30-60 minute. Then the prepared seed shall be conveyed
to the screw pressing machine where it is pressed by the action of worm and outer shell. The
crude oil so obtained from the pressing will be first clarified in a settling tank and then shall be
pumped through the filter press.
The filtered crude ground nut oil will be pumped to the refinery where it shall pass through
three stages of refining: neutralization, bleaching and deodorization.
To reduce the level of free fatty acid (FFA) in the oil, caustic soda will be mixed with the crude
oil. The neutralized oil may have trace of soap which is a by-product of the neutralization
process. Therefore, the oil will be washed with water. It will then be pumped to the bleacher in
which it will be mixed with bleaching earth to improve the color of oil by the process called
adsorption. The bleached oil, after being filtered, will be pumped to the deodorizer to avoid
substances which are responsible for the odor of edible oil. In some very small plant the three
stages of refining crude oil shall be executed in a single vessel. The plant requires a
containment vessel for the collection and treatment of wastes to be generated in the process.
2.

Source of Technology

The machinery and equipment can be obtained from the following company.
Nova Engineering
P.O.chittilapilly, Trichur- 680551, kerala, India
Telephone: 00-91-487-2306170, 2306435
Fax: 91-487-2308890, cell: 9447481890, 9895077644
E-mail: [email protected]
Web site: www.novaind.net

5-11
B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment of the project is indicated in Table 5.1. The total cost of
machinery and equipment is estimated at Birr 3 million, out of which Birr 2.55 million is
required in foreign currency.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Sr.
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

2.

Description

Qty.
LC

Seed cleaning unit

Dust blower
Cyclones
Hammer Mill
Screw conveyor
Bucket elevator
Roller crusher
Screw press
Filter press
Holding tank
Pumps
Neutralizer
Bleacher
Vacuum pump
Condenser
Deodorizer
Water treatment
Boiler
Total

1
1
1
1
3
2
1
1
1
3
5
1
1
1
1
1
Set
Set

67,500
12,600
11,700
6,300
15,750
19,800
27,000
90,000
19,350
15,750
13,500
20,250
14,850
9,900
11,250
22,500
4,500
67,500
450,000

Cost(Birr)
FC
382,500
71,400
66,300
35,700
89,250
112,200
153,000
510,000
109,650
89,250
76,500
114,750
84,150
56,100
63,750
127,500
25,500
382,500
2,550,000

TC
450,000
84,000
78,000
42,000
105,000
132,000
180,000
600,000
129,000
105,000
90,000
135,000
99,000
66,000
75,000
150,000
30,000
450,000
3,000,000

Land, Building and Civil works

The total land requirement of the project is about 2,000m 2, out of which the built-up area is
1000m2. Out of the total built up area, 500m2 will be covered by production facility, 350m2 for

5-12
store and 150 m2 for office building. Therefore, the cost of building is estimated at Birr
2,300,000 million assuming construction cost rate of Birr 2,300 per square meter.
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
272/2002) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.
The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO ,
religious and residential area to 80 years for industry and 70 years for trade while the lease
payment period ranges from 10 years to 60 years based on the towns grade and type of
investment.
Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.
However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.
In Addis Ababa the Citys Land Administration and Development Authority

is directly

responsible in dealing with matters concerning land. However, regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted by the
City Administration for the promotion of the sector and all manufacturing projects are assumed
to be located in the developed industrial zones.
Regarding land allocation of industrial zones if the land requirement of the project is blow 5000
m2 the land lease request is evaluated and decided upon by the Industrial Zone Development

5-13
and Coordination Committee of the Citys Investment Authority. However, if the land request is
above 5,000 m2 the request is evaluated by the Citys Investment Authority and passed with
recommendation to the Land Development and Administration Authority for decision, while the
lease price is the same for both cases.
The land lease price in the industrial zones varies from one place to the other. For example, a
land was allocated with a lease price of Birr 284 /m 2 in Akakai-Kalti and Birr 341/ m2 in Lebu
and recently the citys Investment Agency has proposed a lease price of Birr 346 per m 2 for all
industrial zones.
Accordingly, in order to estimate the land lease cost of the project profiles it is assumed that all
manufacturing projects will be located in the industrial zones. Therefore, for the this profile
since it is a manufacturing project a land lease rate of Birr 346 per m2 is adopted.
On the other hand, some of the investment incentives arranged by the Addis Ababa City
Administration on lease payment for industrial projects are granting longer grace period and
extending the lease payment period. The criterions are creation of job opportunity, foreign
exchange saving, investment capital and land utilization tendency etc. Accordingly, Table 5.2
shows incentives for lease payment.
Table 5.2
INCENTIVES FOR LEASE PAYMENT OF INDUSTRIAL PROJECTS

Scored point
Above 75%
From 50 - 75%
From 25 - 49%

Grace
period
5 Years
5 Years
4 Years

Payment
Completion
Period
30 Years
28 Years
25 Years

Down
Paymen
t
10%
10%
10%

For the purpose of this project profile the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The period of lease for industry is 60 years.
Accordingly, the total lease cost, for a period of 60 years with cost of Birr 346 per m 2, is
estimated at Birr 41.52 million of which 10% or Birr 4,152,000 will be paid in advance. The
remaining Birr 37.37 million will be paid in equal installments with in 28 years i.e. Birr
1,334,571 annually.

5-14

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged project requires 32 work forces. The list of manpower for the envisaged project
is indicated in Table 6.1. The annual cost of labour including fringe benefits is estimated at
Birr 330,750.
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST
Sr.
No.
1.
2.
3.
4.
5.
6.
6.
7.
8.
9.
10.
11
12.
13.
14
15.
16.

B.

Description
General Manager
Secretary
Purchaser
Production and technic head
Personnel
Sales man
Accountant
Cashier
Chemist
Electrician
Mechanic
Production supervisor
Operators
Laborers
Store keeper
Driver
Guards
Sub-Total
Benefits (20% BS)
Grand Total

Req.
No.
1
1
1
1
1
1
1
1
1
1
1
1
6
8
1
2
3
32
32

Monthly
Salary (Birr)
4,000
900
2,000
3,500
2,000
2,000
2,000
500
1,500
900
900
1,500
5,400
2,800
500
1,000
1,050

Annual Salary
(Birr)
48,000
10,800
24,000
42,000
24,000
24,000
24,000
6,000
18,000
10,800
10,800
18,000
64,800
33,600
6,000
12,000
12,600
264,600
66,150
330,750

TRAINING REQUIREMENT

Technical staffs, for example, the production supervisor, chemist, maintenance personnel and
operators shall be trained for about one month by the experts of machinery supplier during
plant erection and commissioning. The total cost of training is estimated to be Birr 50,000.

5-15

VII.

FINANCIAL ANALYSIS

The financial analysis of the ground nut oil project is based on the data presented in the
previous chapters and the following assumptions:Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8.5%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30 days

Work in progress

1 days

Finished products

10 days

Cash in hand

5 days

Accounts payable

30 days

Repair and maintenance

5% of machinery cost

A.

TOTAL INITIAL INVESTMENT COST

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

Birr 10.57

million, of which 24 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.
Table 7.1
INITIAL INVESTMENT COST ( 000 Birr)
Sr.
No.

Cost Items

Local
Cost

Foreign
Cost

Total
Cost

5-16
1

Land lease value

4,152.00

4,152.00

2
3

Building and Civil Work

Plant Machinery and Equipment

2,300.00
450

2550

2,300.00
3,000.00

Office Furniture and Equipment

100

100.00

5
6

Vehicle
Pre-production Expenditure*

250
442.27

250.00
442.27

Working Capital

329.91

329.91

2,550.00

10,574.18

Total Investment cost

8,024.18

* N.B Pre-production expenditure includes interest during construction ( 292.27 thousand ,

training (Birr50 thousand ) and Birr

100

thousand costs of registration, licensing and

formation of the company including legal fees, commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 12.09 million see
Table 7.2).

The raw material cost accounts for 83.20 per cent of the production cost. The

other major components of the production cost are cost of utility , depreciation and finanacial
cost which account for 4.74 %, 4.40 and 3.68 % respectively. The remaining 3.98 % is the
share of repair and maintenance, direct labour and other administration cost.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

5-17
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Labour overheads
Administration Costs
Land lease cost
Total Operating Costs
Depreciation
Cost of Finance

Cost

10,059.62
573.40

83.20
4.74

150.00
158.76

1.24
1.31

66.15
105.84

0.55
0.88

11,113.77
532.5

91.92

444.6

3.68

12,090.83

100

4.40

Total Production Cost

C.
1.

FINANCIAL EVALUATION
Profitability

Based on the projected profit and loss statement, the project will generate a profit through out
its operation life. Annual net profit after tax will grow from Birr 2.3 million to Birr 3.5 million
during the life of the project. Moreover, at the end of the project life the accumulated cash flow
amounts to Birr 33.69 million.
2.

Ratios

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

5-18

3.

Break-even Analysis

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

Fixed Cost

25 %

Sales Variable Cost

4.

Payback Period

The pay back period, also called pay off period is defined as the period required to recover
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly,

based on the projected cash flow it is estimated that the projects initial

investment will be fully recovered within 7 years.

5.

Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal
rate of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of
return that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this porject is computed to be 17.01 % indicating the vaiability of the
project.
6. Net Present Value

5-19
Net present value (NPV) is defined as the total present ( discounted) value of a time series of
cash flows. NPV aggregates cash flows that occur during different periods of time during the
life of a project in to a common measuring unit i.e. present value.

It is a standard method for

using the time value of money to appraise long-term projects. NPV is an indicator of how
much value an investment or project adds to the capital invested. In principal a project is
accepted if the NPV is non-negative.
Accordingly, the net present value of the project at 8.5% discount rate is found to be Birr
8.60 million which is acceptable.
D.

ECONOMIC BENEFITS

The project can create employment for 32 persons.

In addition to supply of the domestic

needs, the project will generate Birr 2.33 million in terms of tax revenue. The establishment
of such factory will have a foreign exchange saving effect to the country by substituting the
current imports.