PRE-FESIBILITY STUDY ON FATTENING OF BUFFALO/CATTLE CALVES
Animal Nutrition Program (ASI) NARC
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
Contents
1- DISCLAIMER 1
2- PURPOSE OF DOCUMENT 1
3- Introduction to scheme 1
4- EXECUTIVE SUMMARY 1
5- BRIEF DESCRIPTION OF PROJECT AND PRODUCT 2
6- CRITICAL FACTORS 2
7- INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES 3
8- GEOGRAPHICAL POTENTIAL FOR INVESTMENT 3
9- POTENTIAL TARGET MARKETS 3
10- PRODUCTION PROCESS FLOW 3
11- PROJECT COST AND BENEFIT SUMMARY 3
12- PROJECT ECONOMICS 3
10.1 Project Cost 4
10.2 Space Requirement 4
10.4 Machinery and Equipment 4
10.5 Furniture and Fixture 5
10.6 Operational and Maintenance cost 5
10.7 Human Resource Requirement 5
10.8 Project Financing 5
10.9 Revenue Generation 6
13- KEY ASSUMPTION 6
14- ANNEXURE 7
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.
2- PURPOSE OF DOCUMENT
The purpose of this document is to facilitate potential investors in by providing them with a general understanding of the business, with the intention of supporting potential investors in crucial investment decisions. 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, finance, and business management. 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 thumb rules; best practices developed by existing enterprises by trial and error, certain industrial norms and well established research findings 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 the basis of investment decisions.
3- Introduction to scheme
Prime Minister’s Youth Business Loan Program, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across the Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
4- EXECUTIVE SUMMARY
Beef from young male calves (12-18 months old) of buffalo and cattle is one of major source of proteins of high biological values and foreign exchange through production of milk, meat and hides. However quality of beef due to their stunted growth rate and poor carcass yield is not satisfactory. Farmers prefer to feed to female calves for replacement of herd. Male calves become neglected due to malnutrition, emaciation and diseases leading to low weight at marketing age and less carcass yield when slaughter. Growth rate and quality of beef and economic return from calves can be improved by fattening. Domestic and international literature has revealed a growth rate of 700 to 900 g/day when calves are fattened with a variety of protein supplements along with appropriate health cover and management.
Such fattening trials can be successfully carried in rural as well as urban areas of Sindh, Punjab, Balochistan, Khyber Pakhtunkhwa, Gilgit-Balitistan, AJ&K and FATA. Such a project can be easily completed by conducting series of trials, each on 25 calves (12-18 months old) for a period of 120 days. Fattened calves can be sold as live or as carcass or cut pieces in any part of the country. A loan of Rs 1.059 offers a good opportunity for an economic investment not only for the production of quality beef but also jobs for our talented youth. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR), and payback period are Rs.3,308,171, 29% and, 4.63 years, respectively.
5- BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Calves of respective breeds of buffalo and cattle in rural areas on all over the country can be subjected to such fattening trials under semi-intensive system. However protein supplements (of different degradability) for fattening and green fodders harvested at bloom stage can vary according to climatic conditions and cropping pattern.
• Location: The business can be initiated in rural and urban areas having access to marketing throughout the country.
• Product: At the moment most of beef is coming from slaughtering of spent animals which is and low quality compared with that from young calves. Fattening of young calves with quality supplements will yield of high grade. Production and use of quality will not only improve our own health but also socioeconomic conditions with foreign exchange earned through export of surplus.
• Target Market: In addition to major cities, such as Quetta, Karachi, Lahore and Islamabad, there is an enormous export potential for Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to two individuals. Financial analysis shows the profitability of proposed business within first year of its operation.
6- CRITICAL FACTORS
The commercial viability of the proposed project depends on the following factors:
• Selection of calves of local breeds of buffalo and cattle, balanced feeding, proper housing, management, appropriate health cover, well defined marketing and dedicated supervisory staff will play very important role in exploitation of genetic potential local breed and will ensure the success of the project.
• Farm may be positioned near to market so that supply of inputs and disposal of final products could be managed easily.
• It should have enough elevation, so it can be drained easily during the off season.
• Calves should preferably represent local breed and disease free with a desirable body conditions.
• Farm is required to maintain the complete record of inputs and out puts (Calves, fodder production or purchase, Feed intake, body weight, morbidity, mortality, sale of animals and manure) and infrastructure like buildings, equipments and fuel for successful marketing and traceability.
• Farm should have strong market linkages for effective disposal of produce.
7- INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES
This pre-feasibility suggests that quality beef can be produced by using local genetic materials feed resources under scientific management in a well defined marketing manner.
8- GEOGRAPHICAL POTENTIAL FOR INVESTMENT
Semi-arid and irrigated areas are more suitable for this investment as regard availability of inputs and marketing of final products.
9- POTENTIAL TARGET MARKETS
The marketing of beef follows the traditional distribution channel, through middlemen or wholesalers at farm who identifies potential buyers and negotiate price, or directly to retailer in urban markets. The time spent in transportation, from farm to the retail shop, varies from area to area. Over the years, collection and transportation of fish has improved with the use of loader vehicles. However, greater the distance between farm and consumer, more complicated will be the marketing or distribution system, due to the perishable nature of the product. The key factors in marketing are availability of current market information, quality of beef produced and supply demand which will determine the selling price.
10- PRODUCTION PROCESS FLOW
Although both species are polyestrous but cattle will be more useful in ensuring flow of production process due to higher fertility rate. However intellectual planning will play an important role in arrangement, use of inputs and their disposal.
11- PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of calf fattening under the Prime Minister’s Small Business Loan Scheme. Various cost and revenue related assumptions, along with results of the analysis, are outlined in this section.
12- PROJECT ECONOMICS
All figures in the financial model have been calculated 30 animals. The following table shows internal rates of return and payback period.
Table 1. Project Economics
Net Present Value (NPV) / 3,380,171
Internal Rate of Return (IRR) / 29%
Payback Period (years)
Factors that influence the profitability of calve fattening are farm management, quality of inputs, environmental factors and market situation.
10.1 Project Cost
Following requirements have been identified for operations of the proposed business.
Table 2. Total Project Cost
Capital Investment / Amount (rupees)Capital Cost (one time investment) / 736,636
Initial operational cost / 1,077,847
Total / 1,814,483
10.2 Space Requirement
Table 3. Space requirement and its cost
Space Requirement (Sq. ft.) / Cost Rs./ Unit / Quantity (Nos.) / Area (Sq. ft.) / Total Cost (Rs.)Veterinary dispensary and office / 500 / 1 / 100 / 75,000
Feed store / 600 / 1 / 70 / 42,000
Shed / 400 / 3 sheds / 625 / 250,000
Loading area including manager and water tank / 105 / 1 loading area / 1000 / 105,000
Miscellaneous facilities (cattle Crush) / 1 cattle Crush / 60,000
Total: / 532,000
10.4 Machinery and Equipment
Table 4. List of Machinery Equipments and its cost
Description / Quantity (Nos.) / Unit Price (Rs.) / Total (Rs.)Weighing scale / 01 / 25,000 / 25,000
Chopper and other equipments / 01 / 30000 / 30,000
Veterinary Kit / 01 / 20,000 / 20,000
Misc Machinery / - / 15000 / 15000
Total: / 90,000
10.5 Furniture and Fixture
Following table provides list of Furniture and Fixture required for fattening calves.
Table 5. List of Furniture & Fixture and its cost
Description / Quantity (Nos) / Unit Price / Total(Rs.)
Furniture and Fixture / Lump sump / 50000 / 50,000
Total: / 50,000
10.6 Operational and Maintenance cost
Following table provides list of Consumable Requirement for fattening calves.
Table 6. Operational & Maintenance cost
Description / Quantity (Nos.) / Unit Price(Rs.) / Total
(Rs.)
Cost of purchase of animals (125kg body weight) / 25 / 23750 / 593,750
Cost of feeding of animals @ Rs. 116/day (including fodder/silage and concentrate) / - / - / 348,000
Cost of Medicines / - / - / 1,250
Electricity / - / - / 7,500
Diesel Charges / - / - / 6,000
Total: / 956,500
* Local livestock market.
10.7 Human Resource Requirement
The table below provides details of human resource required to manage basic calves fattening. The staff salaries are estimated according to the market trends. However, these requirements and pay scales may vary area to area.
Table 7. Human Resource Requirement its cost
Description / No. of Employees / Salary/person/ month / Total salary per yearLaborers / 2 / 10000 / 240,000
10.8 Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 8. Project financing
Description / DetailsTotal Equity (10%) / Rs. 180500
Bank loan / Rs. 1624500
Mark up to borrower (per annum) / 8%
Tenure of Loan (Years) / 8
Grace Period (years) / 1
10.9 Revenue Generation
Final product of the trial is 25 fattened calves ready for sale in market that will generate revenue. Trial will be repeated at least thrice a year with sufficient generation of funds.
Table 9. Revenue of the Project
Product / Unit / Survival @100% / Average Weight of calf / First Time Production (Kg) / Sales Price (Rs./Unit) / First Time Revenue (Rs)Fattened calves / 25 / 215 kg / 215/kg body weight / 1,,155,625
Farm yard manure / 16500
Total Sales Revenue: / 1,172,125
13- KEY ASSUMPTION
Particulars / AssumptionSales Price Growth Rate / 5% per year
Increase in cost of raw material / 10% per year
Increase in utilities / 10% per year
Debt/Equity Ratio / 90:10
Plant Building / 5%
Machinery and equipment / 10%
Office furniture & fixture / 10%
Loan Period / 8 years
Grace Period / 1 year
Loan installments / Monthly
Financial charges (interest rate) / 8%
14- ANNEXURE