1st Draft

PRE-FESIBILITY STUDY
High Efficiency Irrigation System Services Business

PAKISTAN AGRICULTURE RESEARCH COUNCIL

ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
February, 2014

TABLE OF CONTENTS
1 DISCLAIMER.................................................................................................................................................... 1

2. PURPOSE OF THE DOCUMENT................................................................................................................. 2

3. INTRODUCTION TO PARC.......................................................................................................................... 2

4. INTRODUCTION TO SCHEME.................................................................................................................... 3

5. EXECUTIVE SUMMARY................................................................................................................................ 3
Pre-Feasibility Study High Efficiency Irrigation Systems Services Business
6. BRIEF DESCRIPTION OF PROJECT & PRODUCT................................................................................ 5

7. CRITICAL FACTORS...................................................................................................................................... 5

8. INSTALLED & OPERATIONAL CAPACITIES........................................................................................ 6

9. POTENTIAL TARGET MARKETS / CITIES........................................................................................... 6

10. PROJECT COST SUMMARY..................................................................................................................... 6

10.1...................................................................................................................................... Project Economics

................................................................................................................................................................................... 7
10.1........................................................................................................................................ Project Financing
................................................................................................................................................................................... 7
10.1................................................................................................................................................... Project Cost
................................................................................................................................................................................... 8
10.2..................................................................................................................................... Space Requirement
................................................................................................................................................................................... 8
10.3........................................................................................................... Equipment and Office Furniture
................................................................................................................................................................................... 9
10.4............................................................................................................................... Furniture and Fixtures
................................................................................................................................................................................... 9
10.5.................................................................................................................... Raw Material Requirements
................................................................................................................................................................................... 9
10.6.............................................................................................................. Human Resource Requirement
................................................................................................................................................................................. 10
10.7............................................................................................................................................... Operating Cost
................................................................................................................................................................................. 10
10.8.................................................................................................................................... Revenue Generation
................................................................................................................................................................................. 11

11. KEY ASSUMPTIONS................................................................................................................................ 11

12. CONTACT DETAILS OF EXPERTS AND COMPANIES................................................................12

13. ANNEXURE................................................................................................................................................ 13

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Pre-Feasibility Study High Efficiency Irrigation Systems Services Business
LIST OF TABLES
Table 1:Project Economics ................................................................................................................................. 7

Table 1: Project Financing................................................................................................................................... 8

Table 1: Capital Investment for the Project................................................................................................. 8

Table 1: Space Requirements and its Cost.................................................................................................... 9

Table 2: List of Office Equipment and Machinery..................................................................................... 9

Table 3: Furniture and Fixture.......................................................................................................................... 9

Table 4: Human Resource Requirement..................................................................................................... 10

Table 6: Operating Cost..................................................................................................................................... 10

Table 5: Revenue Generation.......................................................................................................................... 11

Table 7: Key Assumptions................................................................................................................................ 11

Table 8: Details of Experts and Companies............................................................................................... 12

Table 9: Income Statement.............................................................................................................................. 13

Table 10: Cash Flow Statement...................................................................................................................... 14

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1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a
general idea and information on the subject. Although, the material included in
this document is based on data/information generated from experiments and
field testing by a team of relevant scientists; however, it is based upon certain
assumptions which may differ from case to case. The contained information may
vary due to any change in any of the concerned factors, and the actual results
may differ accordingly from the presented information. The PARC and its
employees do not assume any liability for any financial or other loss resulting
from this memorandum in consequence of undertaking this activity. The
prospective user of this memorandum is encouraged to contact qualified
consultant/technical expert, especially designated focal person(s) of this
enterprise for reaching to an informed decision.

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2. PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential
entrepreneurs in project identification for investment. The project pre-feasibility may
form the basis of an important investment decision and in order to serve this objective,
the document/study covers various aspects of project concept development, start-up,
production, marketing, finance and business management. The document also provides
sectoral information, brief government policies and international scenario, which have
some bearing on the project itself. The purpose of this document is to facilitate potential
investors in High Efficiency Irrigation Systems Services Business (Drip, Sprinkler and
Furrow Bed Irrigation Systems Business) by providing them a holistic as well as a micro
view of business with the hope that such information as provided herein will help the
potential investors in crucial investment decisions. The need to come up with pre-
feasibility reports for undocumented or minimally documented sectors attains greater
imminence as the research that precedes such reports reveal certain thumbs of rules;
best practices developed by existing enterprises by trial and error, and certain
industrial norms that become a guiding source regarding various aspects of business
set-up and it’s successful management. Apart from carefully studying the whole
document one must consider critical aspects provided later on, which form basis of any
Investment Decision.

3. INTRODUCTION TO PARC
Pakistan Agricultural Research Council (PARC) is an apex national organization working
in collaboration with federal, provincial and international organizations to provide
science based solutions to agriculture in Pakistan. Its functions according PARC
Ordinance 1981 are as follows:
 To undertake, aid, promote and coordinate agricultural research
 To arrange expeditious utilization of research results

 To fill the gaps in existing programs of agricultural research

 To arrange the training of high level scientific manpower in agricultural sciences

 To generate, acquire and disseminate information relating to agriculture

 To establish and maintain a reference and research library.

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  To perform any other functions related to the matters aforesaid

4. INTRODUCTION TO SCHEME
The ‘Prime Minister’s Youth Business Loan Scheme’ is for young entrepreneurs,
with an allocated budget of Rs. 5.0 Billion for the year 2013-14. It is designed to
provide subsidized financing at 8% mark-up per annum for one hundred
thousand (100,000) beneficiaries, through designated financial institutions,
initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd.
(FWBL). Small business loans up to 2 million with tenure up to 8 years, inclusive
of a 1 year grace-period and a debt : equity of 90:10 will be disbursed to SME
beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah,
Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered
Tribal Areas (FATA).

5. EXECUTIVE SUMMARY
The High Efficiency Irrigation System Services Business is service oriented and
larger potential for profit. The increase in demand for irrigation water due to
rising demand for food and fiber caused by rising population and climate change
necessitate the need for enhancing the irrigation performance on farm. This is
only possible by adopting high efficiency irrigation systems on farms. This
system is already in priority areas of the government and the increasing
awareness in farming community is increasing its market demand. Therefore the
proposed high efficiency irrigation systems services business is feasible and has
a greater scope. Importantly the demand for high efficiency irrigation systems
will rise with time. The capital cost for services of HEIS is estimated 0.456
million rupees. The project will provide employment opportunity to 03
individuals including the manager (owner). The revenue potential of the project
varies according to the type of service and market segmentation. The project is
expected to achieve the revenues of around Rs. 1.23 million in the first year. This
project can be started as a sole proprietorship, partnership or a limited company
after getting distribution license from high efficiency irrigation systems
companies and liaison with local agriculture machinery rental.

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6. BRIEF DESCRIPTION OF PROJECT & PRODUCT
This feasibility report describes the investment opportunity for setting up a
business of High Efficiency Irrigation Systems (HEIS) to offer services to variety
of clients covering farmers and corporate oriented farmers including home
gardening and off/on season vegetable and crop growers under tunnel farming
through drip and sprinkler irrigation system. The business will also offer
services in improving field layout, topography and irrigation infrastructure
under furrow bed irrigation systems on farms. The HEIS business will work in
close contact with high efficiency system companies (drip/sprinkler) for the
supply of required material on farmers cost. Similarly, the local agricultural
machinery rental services will be used in developing a furrow bed irrigation
system while the HEIS service will charge service charges at 10% of total cost.
The project is proposed to be established in a rented building having covered
area of 1800 sq ft. preferably in proximity of area, where these drip and
sprinkler irrigation system are being used in Pakistan. Other areas where there
is water scarcity, ground water is pumped or water has been stored in small
dams also have potential for this business. Such locations can be selected based
on local demand, farmer's awareness, resources availability and market
conditions. This business has been estimated to handle 44 projects covering 240
acres of land per year.

7. CRITICAL FACTORS
Following critical factors are to be taken care of for a successful HEIS.
1. Entrepreneur’s knowledge and background in the respective fields.
2. Location considerations; proximity of office to the near area where the HEIS
already being functioning or in demand.
3. License of distribution services from drip and sprinkler irrigation systems
companies
4. Local availability of machinery rental services for land leveling and furrow bed
farming system management
5. Efficient utilization of resources to ensure delivery within specified financial
resources and timeframe.

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 6. Linkage with suppliers especially those related to PE, UPVC, LDPE, HDPE and
drip and sprinkler irrigation system, related accessories and related material
companies.
7. Reasonable marketing and awareness to showcase portfolio of services. Quality
of services and post transaction ancillary services.

8. INSTALLED & OPERATIONAL CAPACITIES

The facility may be run by 03 member team of professionals / support staff led
by the owner / manager (Agricultural engineer, surveyer/technician/plumber
and Helper). The project is expected to handle 44 projects in the first year while
the total handling capacity with the specified human resource is 440 projects in
ten year plan.

9. POTENTIAL TARGET MARKETS / CITIES

The potential target markets for different high efficiency irrigation systems may
vary according to water, crops, market demand and land conditions. However,
the drip and sprinkler irrigation systems are suitable for the mountainous areas
(northern areas, Mansehra, Swat, Dir, FATA and AJK), Coastal areas, areas of
Baluchistan where surface water exist, Potowar and southern deserts of Punjab
and Sindh province having potential of fruit plants, vegetable and high value
crops. The increasing awareness and decreasing available water is also
increasing demand for sprinkler and drip irrigation systems in canal and
groundwater irrigated areas like the Indus Basin. The furrow bed irrigation
systems service may be beneficial in canal and groundwater irrigated areas
(Indus Basin) of all four provinces, areas where row crops (maize, cotton,
tobacco, sugar beet etc) and vegetables are grown (Mardan, Charsadda,
Sargodha, Okara, Multan, Sukkur etc) and on farms whose economies are of
scale.

10. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial
viability of this business under the ‘Prime Minister’s Youth Business Loan’

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 program. The HEIS services business involves a relatively less capital cost,
because the cost of machinery and equipment will be the responsibility of the
farmers or local rental/high efficiency irrigation systems companies. This HEIS
services business will provide expert advice, install systems on farms with extra
labor met by the farmer and will generate income as service charges. Various
cost and revenue related assumptions along with results of the analysis are
outlined in the following sections; while the Project Income statement and cash
flow are attached as annexure.

10.1 Project Economics

The following table shows the Net Present Value (NPV), Benefit Cost Ratio (BCR),
Internal Rate of Return (IRR) and payback period.
Table 1: Project Economics
Description Details
Net Present Value (NPV) 750661

Benefits Cost Ratio (BCR) 1.11

Internal Rate of Return (IRR) 17%

Payback Period (years) 6.17

Returns on the scheme and its profitability are highly dependent on the
entrepreneur having some practical knowledge and skilled about design, layout and
installation of drip and sprinkler irrigation systems. Moreover, selection of best
material, and link with various required material companies and selection of right
farm for providing the services.

10.2 Project Financing

Following table provides details of the equity required and variables related to bank
loan;

Table 2: Project Financing

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Description Details

Project life (Years) 10

Equity Ratio (10%) 153600

Debit Ratio (90%) 1382400

Interest Rate on Loan 8%

Debt Tenure (Years) 8

10.3 Project Cost

The total project cost is summarized in the following table.
Table 3: Capital Investment for the Project
Capital Investment Unit cost (Rs.) Total Amount (Rs.)
Furniture & fixtures 23000 23000
Office equipment and machinery 73000 73000
Motor Cycle 90000 90000
Cash in hand (@3 month of operating 270000 270000
cost)
Total capital cost 456000

10.4 Space Requirement

The space requirement for the office of proposed high efficiency irrigation system
services of mainly consists of management office, work shop and storage room. For this
purpose it is recommended that 1800 sq.ft area to be acquired on rental basis in the
vicinity in the city. The monthly rent of the building is estimated as Rs. 10,000 per
month. The available space may be divided in to the following main areas:
1) Room for Manager Operations 2) Office Staff Space for designing system
3) Meeting Room 4) Store Room

Table 6: Space Requirement and its Cost

Space Requirement Cost Quantity Area Total Cost
(1800 Sq. ft.) Rs/Month (No) (Sq.ft) (Rs/Year)

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Building Rental Cost 10,000 01 1800 1,20000
Total 1,20000

10.5 Equipment and Office Furniture

The list of equipment and machinery required are summarized in table 2:

Table 4: List of Office Equipment and Machinery

Description of item Qty Unit cost (Rs.) Amount (Rs.)
Laptop (used) 1 20000 20000
Printer with scanner 1 15000 15000
Telephone Set 1 1000 1000
Installation Tool kit 1 10000 10000
Survey level 1 12000 12000
Digital Camera 1 15000 15000
Total 6 73000
10.6 Furniture and Fixtures

The details of furniture and fixture required for the proposed venture are provided in
the following table 3.
Table 5: Furniture and Fixture
Description Qty Unit cost (RS) Amount (RS)
Sitting table 2 2500 5000
Chairs 6 1500 9000
Frames/racks 2 1000 2000
Cupboard 2 3500 7000
Total 12 23000
10.5 Raw Material Requirements

The material requirement would vary as per the client requirements and preferences.
However, the material will be purchased from the supplier as per farm requirements
and the cost will be met by the farmer. The material for drip system includes LDPE drip
lines, head unit, pumping unit and other accessories and for sprinkler system includes
sprinklers, drive unit, HDPE pipe and other fitting accessories. However, the furrow bed
former, sowing drill and land leveler will be hired from the local market on farmer cost
while this business will only charge for services.

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10.6 Human Resource Requirement

The details of human resource required for the successful operation of HEIS business is
summarized in table 4. The Owner/ Manager should be technical person preferably in
the field of agricultural engineering and shall formulate policies and should take
strategic decisions. Above HR team shall be engaged in order to manage the operational
affairs of this project under the supervision of Owner/Manager. Appropriate experience
along with high level of vision will be key requirements for these professionals. The
entrepreneur will be responsible for getting necessary training from the concerned
departments working on HEIS. The training and field facilitation by PARC will depend
on resources availability, number of candidates and availability of expertise in the
required area.
Table 6: Human Resource Requirement
Description No of workers Monthly Salary
Skilled Manager/Agricultural 1 30000
Engineer/owner
Surveyor/technician 1 15000
Helper 1 10000
Total 3 55000

10.7 Operating Cost

The expected operating cost is summarized in the following table.

Table 8: Operating Cost

Description Rs. per month Annual Cost

Salary 55000 660000
Fuel 15000 180000
Refreshment & meals 5000 60000
Rent of office cum store 10000 120000
Utilities 5000 60000
Total 1080000

10.8 Revenue Generation

Table No. 7 provide details of revenue expected to be generated from the HEIS business
during the first year of launching of this business.

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Table 7: Revenue Generation

Services No. of Area Project cost Service charges

projects/year (Acres) (Rs.) @10%
Drip Irrigation System 5 1 450000 45000
6 5 2700000 270000
3 10 2700000 270000
1 15 1350000 135000
Sprinkler Irrigation 5 1 375000 37500
System 5 5 1875000 187500
2 10 1500000 150000
1 15 1125000 112500
Furrow Bed Irrigation 5 1 10000 1000
System 5 5 50000 5000
5 10 100000 10000
1 15 30000 3000
Total 44 240 12265000 1226500

11. KEY ASSUMPTIONS

The key assumptions are summarized in table:

Table 9: Key Assumptions

Particulars Assumption
Sales Price Growth Rate 10% per year
Increase in cost of raw material 5% per year
Increase in utilities 10% per year
Debt/Equity Ratio 90:10
Service Charges 10%
Loan Period 8 years
Grace Period 1 year
Loan Installments Yearly
Markup 8%

CONTACT DETAILS OF GOVT. INSTITUTIONS/ EXPERTS/CONSULTANTS

Name: Dr. M. Munir Ahmad

Designation: Principal Scientific Officer (PSO)

Institute: Climate Change, Alternate Energy and Water Resources Institute,

(CAEWRI), National Agricultural Research Centre, Park Road, Islamabad

Email Address: [email protected]

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Tel: +92-51-8443757

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 FINANCIAL ANALYSIS
Table 11: Project Income Statement

INCOME STATEMENT

Year Year Year Year Year Year Year Year Year Year
Revenues 1 2 3 4 5 6 7 8 9 10
1,226,500 1,349,150 1,484,065 1,632,472 1,795,719 1,975,291 2,172,820 2,390,102 2,629,112 2,892,023
Fuel 180,000 189,000 198,450 208,373 218,791 229,731 241,217 253,278 265,942 279,239
Cost of Goods Sold 180,000 189,000 198,450 208,373 218,791 229,731 241,217 253,278 265,942 279,239
Gross Profit 1,046,500 1,160,150 1,285,615 1,424,099 1,576,928 1,745,560 1,931,602 2,136,823 2,363,170 2,612,784
Salaries 660,000 726,000 798,600 878,460 966,306 1,062,937 1,169,230 1,286,153 1,414,769 1,556,245
Rent 120,000 132,000 145,200 159,720 175,692 193,261 212,587 233,846 257,231 282,954
Utilities 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477
Depreciation 18,600 18,600 18,600 18,600 18,600 18,600 18,600 18,600 18,600 18,600
Other Office Expenditure 60,000 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477
Interest on Loan 110,592 110,592 98,198 84,812 70,355 54,742 37,880 19,668 - -
Sub - Total 1,029,192 1,119,192 1,205,798 1,301,312 1,406,645 1,522,801 1,650,884 1,792,114 1,947,830 2,140,753
Operating Income 17,308 40,958 79,817 122,787 170,282 222,759 280,718 344,710 415,340 472,031
Tax - - - - - - - - 1,534 7,203
Net Income 17,308 40,958 79,817 122,787 170,282 222,759 280,718 344,710 413,806 464,828

Table 12: Project Cash flow Statement

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 CASHFLOW STATEMENT
Year-0 Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10
Net Income 17,308 40,958 79,817 122,787 170,282 222,759 280,718 344,710 413,806 464,828
Depreciation 18,600 18,600 18,600 18,600 18,600 18,600 18,600 18,600 18,600
(180,000
Net Inventory (19,800) (21,780) (23,958) (26,354) (28,989) (31,888) (35,077) (38,585) (42,443) 466,874
)
Tax - - - - - - - - 1,534 7,203
Cash from Operations (180,000
(2,492) 37,778 74,459 115,033 159,893 209,471 264,241 324,725 391,497 957,504
Inflow / Outflow )
Interest on Loan 110,592 110,592 98,198 84,812 70,355 54,742 37,880 19,668 - -
Net Cash from (180,000 (113,084
(72,814) (23,738) 30,222 89,538 154,729 226,361 305,057 391,497 957,504
Operations ) )
Owners Equity 153,600
Principal Amount - 154,929 167,323 180,709 195,166 210,779 227,641 245,853 - -
1,382,40
Long Term Loan
0
Cash from Financing 1,536,00
- 154,929 167,323 180,709 195,166 210,779 227,641 245,853 - -
Inflow / Outflow 0
Furniture and Fixture (23,000)
(120,000
Land Rent (Building)
)
Machinery and (163,000
Equipment )

Net Cash from (306,000

- - - - - - - - - -
Investing Activities )

Net Cash 1,050,00 (113,084

82,115 143,585 210,931 284,704 365,508 454,003 550,910 391,497 957,504
Inflow / Outflow 0 )
1,050,00 1,019,03 1,373,54 1,658,25 2,023,75 2,477,76 3,028,67
Opening Balance - 936,916 1,162,616 3,420,168
0 1 6 0 8 1 1
1,050,00 1,019,03 1,162,61 1,658,25 2,023,75 2,477,76 3,028,67 3,420,16
Closing Balance 936,916 1,373,546 4,377,672
0 1 6 0 8 1 1 8

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