Pre-Feasibility Study
On
Village Based Informal Seed Enterprise
(Lentil Seed Production)
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
January 2014
Contents
1.DISCLAIMER
2.PURPOSE OF THE DOCUMENT
3.INTRODUCTION TO SCHEME
4.EXECUTIVE SUMMARY
5.BRIEF DESCRIPTION OF PROJECT & PRODUCT
6.CRITICAL FACTORS
7.GEOGRAPHICAL POTENTIAL FOR INVESTMENT
8.POTENTIAL TARGET MARKETS / CITIES
9.PRODUCTION PROCESS FLOW
10.PROJECT COST SUMMARY
10.1 PROJECT ECONOMICS
10.2 PROJECT COST
10.3 LAND REQUIREMENT
10.4 HUMAN RESOURCE REQUIREMENT
10.5 OPERATIONAL AND MANAGEMENT COST
10.6 PROJECT FINANCING
10.7 REVENUE GENERATION
11.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
12.ANNEXURE
12.1 KEY ASSUMPTIONS
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 THE DOCUMENT
The purpose of this document is to facilitate potential investors in village based informal seed enterprise (lentil seed production) 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 its 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 Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
4.EXECUTIVE SUMMARY
Seed can play a critical role in increasing agricultural productivity. As far as pulses are concerned there is no effective seed production system in either the public or private sectors that could support the diffusion of new improved varieties. Therefore, lentil seed production is a good profit business that could be suitable for small scale enterprises in rural areas. The proposed project is a small to medium sized seed production farming unit, spreading over 10 acres. New improved high yielding, multiple disease and lodging resistant lentil variety Markaz-09 is recommended to be cultivated in this project. This project can be successfully carried out in Pothwar area where supplemental irrigation is available. The total time; from land preparation to harvesting, is around 8 months. The potential yield of the variety is 3.2 t/ha, however the farmers of the area are getting an average of 1.6 t/ha. The Adherence to complete production technology as recommended is critical to the success of this project, therefore technical knowledge & experience of the entrepreneur is absolutely necessary. The cost for setting up the proposed farm is estimated at Rs. 0.43million. The project is proposed to be financed through 90% debt and 10% equity. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR), Benefit Cost Ratio (BCR) and payback period are Rs 2,548,977.39, 70%,1.73 and 1.59 years respectively.
5.BRIEF DESCRIPTION OF PROJECT & PRODUCT
Given the critical role that seed plays in agricultural production, a key question is how to facilitate the development of a seed system that is capable of generating, producing and distributing new seed varieties that meet the needs of all farmers, in a cost-effective way given the critical role that improved varieties play in increasing agricultural production. Lentil (Lens culinaris Medik.) is the second major winter season pulse crop after chickpea in Pakistan.Lentil is cultivated on an area of about 40 thousand hectare with annual production of about 24,000 tones. Total production does not meet the domestic demand, hence lot of foreign exchange is spent every year to import lentil. National average yield of the country is 0.55 tons per hectare which is well below against the potential yield (2.5-3.0 t ha-1) of new improved varieties. Pulse Research Program, Crop Sciences Institute (CSI), National Agricultural Research Center (NARC), Islamabad has developed and released a high yielding, multiple disease and lodging resistant variety MARKAZ-09. This variety has yield potential of 3.2 t/ha, and hence gaining popularity among farming community especially in Pothwar region (Attock, Rawalpindi, Chakwal, Jehlum and Gujrat districts). The production of lentil seed can be successfully carried out in Pothwar region because the demand of quality seed of this variety is increasing day by day, as 60% of the total lentil area is located in this region. As quality seed fetches high price as compared to grain, there is immense potential in this entrepreneur to invest.
6.CRITICAL FACTORS
Followingprinciplesneedtobepursuedfor the production of quality lentil seed:
- Acquisition of basic/pre-basic seed from research centers/institutes
- Acquisition of land on lease.
- Hiring of farm machinery for land preparation.
- Timely planting
- Balanced use of fertilizers/bio-fertilizer
- Efficient weed control
- Timely and judicious use of supplemental irrigation water, if needed
- Timely and mechanized harvesting/threshing
- Proper cleaning and storage
- Marketing
7.GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The production of lentil seed can be successfully carried in Pothwar region (Attock, Rawalpindi, Chakwal, Jehlum and Gujrat districts) because the demand of quality seed of this variety is increasing day by day, as 60% of the total lentil area is located in this region.
8.POTENTIAL TARGET MARKETS / CITIES
Keeping in view demand and whole sale markets, major cities / urban area of Attock, Rawalpindi, Chakwal, Jehlum and Gujrat districtsare the potentialmarkets for lentil seed.
9.PRODUCTION PROCESS FLOW
Followingistheprocess for the production of quality lentil seed
10.PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of lentil seed production. Various cost and revenue related assumptions along with results of the analysis are outlined in this section.
10.1 PROJECT ECONOMICS
All figures in the financial model have been calculated for 10 acres of land. The following table shows net present value, benefit cost ratio, internal rates of return and payback period.
10.1. Project Economics
Description / DetailsNet Present Value (NPV) / Rs 2,548,977.39
Benefits Cost Ratio (BCR) / 1.73
Internal Rate of Return (IRR) / 70%
Payback Period (years) / 1.59
10.2 PROJECT COST
Following requirements have been identified for operations of the proposed business.
Table 10.2: Total Project Cost
Head / Amount (Rupees)Pre-Operating Cost / 20000
Land and Store / 82,000
Human Resource Requirement (Labor & Sales Officer) / 67000
Operational and Management / 269800
Total Cost / 438800/-
10.3 LAND REQUIREMENT
It is recommended that the proposed project should be started on a rented land for growing and storage of the lentil seed, which are approximately 10 acres and a store building. The land should be somewhere near the seed market/ city of selected area in a rural or a peri-urban location.
Table10.3: Land Requirement and its Cost
Land Requirement (Ac.) / Cost Rs./ Unit / Area (Acre) / Total Cost (Rs.)Land on Rent / 5000 / 10 / 50000
Storage Rent / 32000
Total / - / - / 82000
10.4HUMAN RESOURCE REQUIREMENT
This project provides employments opportunity to 5-6 people to manage lentil seed production on different operations of the project. The given below table provides the labor engaging activities in the project and their wages according to the activity.
Table 10.4: Human Resource Requirement its Cost
Description / Labour days / Labour cost/person/day / Total labour cost/6 monthsLabour / 20 / 350 / 7000
Description / No. of Employees / Salary/person/ month / Total salary per 6months
Sales Officer / 1 / 20000 / 60000
Total Cost / - / - / 67000
10.5 OPERATIONAL AND MANAGEMENT COST
Following table provides list of consumable requirement for lentil seed production.
Table10.5: Operational & Management Cost (10 Acres)
Description / RupeesCost of Seed / 20000
Land Preparation / 34000
Fertilizer Cost (10 Acre) / 35000
Sowing / 6000
Irrigation / 15000
Weedicide / 20000
Insecticide / 2000
Harvesting / 40000
Threshing by Thresher / 30000
Seed cleaning and Grading / 30000
Packing / 12800
Transportation / 10000
Seed for Certification / 10000
Marketing / 5000
Total Cost / 269800
10.6 PROJECT FINANCING
Following table provides details of the equity required and variables related to bank loan;
Table 10.6: Project Financing
Description / DetailsTotal Equity (10%) / Rs. 43880
Bank Loan (90%) / Rs. 394920
Mark up to Borrower (per annum) / 8%
Tenure of Loan (years) / 8
Grace Period (years) / 1
10.7 REVENUE GENERATION
Final product of lentil seed ready for sale in market will generate revenue. The capacity of farm is 6000kg/10 acres in first year, sale price as per market Rs. 115 and total revenue will be Rs. 690,000.
Table 10.7: Revenue of the Project
Product / Unit Produced / Sales Price (Rs./Unit) / Revenue (Rs)Lentil Seed (Markaz-09) / 6000 / 115 / 690,000
11.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
DR. SHAHID RIAZ MALIK
PULSES PROG. CSI, NARC, ISLAMABAD
Ph: 051-8443519
Email:
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12.ANNEXURE
Annex12.1: Income Statement
Year / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 10Sales Revenue / 690000 / 826875 / 911630 / 1005072 / 1108092 / 1221671 / 1346892 / 1484949 / 1637156 / 1804964
Land Rent / 50000 / 55000 / 60500 / 66550 / 73205 / 80526 / 88578 / 97436 / 107179 / 117897
Wages (Labor@350 per day) / 7000 / 7700 / 8470 / 9317 / 10249 / 11274 / 12401 / 13641 / 15005 / 16506
Cost of Seed / 20000 / 22000 / 24200 / 26620 / 29282 / 32210 / 35431 / 38974 / 42872 / 47159
Land Preparation / 34000 / 37400 / 41140 / 45254 / 49779 / 54757 / 60233 / 66256 / 72882 / 80170
Fertilizer cost (10 Acre) / 35000 / 38500 / 42350 / 46585 / 51244 / 56368 / 62005 / 68205 / 75026 / 82528
Sowing / 6000 / 6600 / 7260 / 7986 / 8785 / 9663 / 10629 / 11692 / 12862 / 14148
Irrigation / 15000 / 16500 / 18150 / 19965 / 21962 / 24158 / 26573 / 29231 / 32154 / 35369
Weedicide / 20000 / 22000 / 24200 / 26620 / 29282 / 32210 / 35431 / 38974 / 42872 / 47159
Insecticide / 2000 / 2200 / 2420 / 2662 / 2928 / 3221 / 3543 / 3897 / 4287 / 4716
Harvesting / 40000 / 44000 / 48400 / 53240 / 58564 / 64420 / 70862 / 77949 / 85744 / 94318
Threshing by thresher / 30000 / 33000 / 36300 / 39930 / 43923 / 48315 / 53147 / 58462 / 64308 / 70738
Seed cleaning and grading / 30000 / 33000 / 36300 / 39930 / 43923 / 48315 / 53147 / 58462 / 64308 / 70738
Paking / 12800 / 14080 / 15488 / 17037 / 18740 / 20615 / 22676 / 24944 / 27438 / 30182
Transportation / 10000 / 11000 / 12100 / 13310 / 14641 / 16105 / 17716 / 19487 / 21436 / 23579
Seed certification / 10000 / 11000 / 12100 / 13310 / 14641 / 16105 / 17716 / 19487 / 21436 / 23579
Marketing / 5000 / 5500 / 6050 / 6655 / 7321 / 8053 / 8858 / 9744 / 10718 / 11790
Cost of Inputs (Sum 11:26) / 326800 / 359480 / 395428 / 434971 / 478468 / 526315 / 578946 / 636841 / 700525 / 770577
Gross Profit (9-27) / 363200 / 467395 / 516202 / 570101 / 629624 / 695356 / 767946 / 848108 / 936631 / 1034387
Salaries / 20000 / 22000 / 24200 / 26620 / 29282 / 32210 / 35431 / 38974 / 42872 / 47159
Storage of product / 32000 / 35200 / 38720 / 42592 / 46851 / 51536 / 56690 / 62359 / 68595 / 75454
Insurance / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Depreciation / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Amortization of pre operating expenses / 4000 / 4000 / 4000 / 4000 / 4000 / 0 / 0 / 0 / 0 / 0
Interest on Loan / 30116 / 30116 / 26741 / 23096 / 19159 / 14907 / 10315 / 5356 / 0 / 0
Sub - Total (Sum of 31:36) / 86116 / 91316 / 93661 / 96308 / 99292 / 98654 / 102437 / 106689 / 111467 / 122613
Operating Income (29-37)) / 277084 / 376079 / 422540 / 473793 / 530331 / 596702 / 665510 / 741419 / 825165 / 911774
Tax / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Net Income (39-41)) / 277084 / 376079 / 422540 / 473793 / 530331 / 596702 / 665510 / 741419 / 825165 / 911774
Annex12.2: Cash Flow
Year / Year 0 / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 10Net Profit / 277083.5 / 376078.5 / 422540.4 / 473792.9 / 530331.4 / 596702.4 / 665509.6 / 741418.6 / 825164.5 / 911773.8
Depreciation / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Inventory / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Income Tax / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Cash from Operations
Inflow / Outflow / 0 / 277083.5 / 376078.5 / 422540.4 / 473792.9 / 530331.4 / 596702.4 / 665509.6 / 741418.6 / 825164.5 / 911773.8
Mark-up Paid / 30116.48 / 30116.48 / 26741.25 / 23096.01 / 19159.15 / 14907.33 / 10315.37 / 5356.06 / 0 / 0
Net Cash from Operations
Inflow / Outflow / 0 / 246967 / 345962 / 395799.2 / 450696.9 / 511172.2 / 581795.1 / 655194.2 / 736062.5 / 825164.5 / 911773.8
Owners Equity
Principal Repayment / 0 / 42190.33 / 45565.55 / 49210.8 / 53147.66 / 57399.48 / 61991.43 / 66950.75 / 0 / 0
Long Term Loan
Cash from Financing
Inflow / Outflow / 0 / 42190.33 / 45565.55 / 49210.8 / 53147.66 / 57399.48 / 61991.43 / 66950.75 / 0 / 0
Cash from Investment / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Furniture and Fixture / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Machinery and Equipment / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Net Cash from Investing Activities / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Net Cash
Inflow / Outflow / 0 / 246967 / 388152.4 / 441364.7 / 499907.7 / 564319.9 / 639194.6 / 717185.6 / 803013.3 / 825164.5 / 911773.8
Opening Balance / 0 / 0 / 246967 / 635119.4 / 1076484 / 1576392 / 2140712 / 2779906 / 3497092 / 4300105 / 5125270
Closing Balance / 0 / 246967 / 635119.4 / 1076484 / 1576392 / 2140712 / 2779906 / 3497092 / 4300105 / 5125270 / 6037044
12.1 KEY ASSUMPTIONS
Annex.12.3: Key Assumptions
Particulars / AssumptionSale Price Growth / 5%
Increase in Output / 5%
Increase in Input Price / 10%
Debt/Equity Ratio / 90:10
Loan Tenure / 8
Grace Period / 1
Loan Installments / Monthly
Financial Charges (Interest Rate) / 8%
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