PRE-FESIBILITY STUDY
OFF SEASON VEGETABLE PRODUCTION
(HIGH TUNNEL)
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
i
Contents
1. DISCLAIMER 3
2. PURPOSE OF DOCUMENT 4
3. INTRODUCTION TO SCHEME 4
4. EXECUTIVE SUMMARY 4
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT 6
6. CRITICAL FACTORS 6
7. INSTALLED AND OPERATIONAL CAPACITY FOR OFF SEASON VEGETABLE FARMING 7
8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT 7
9. POTENTIAL TARGET MARKETS 7
10. PRODUCTION PROCESS FLOW 7
11. PROJECT COST AND BENEFIT SUMMARY 8
11.1 Project Economics 8
11.2 Project Financing 9
11.3 Project Cost 9
11.4 Space Requirement 10
11.5 Machinery and Equipments 10
11.6 Operational and Maintenance Cost 10
11.7 Human Resource Requirement 11
11.8 Revenue Generation 11
12. KEY ASSUMPTION 12
13. FINANCIAL ANALYSIS 13
i
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 Off Season Vegetable Production-High tunnelby 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 Programme, 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
Growing out-of-season crops in controlled atmosphere inside polythene tunnel is called Tunnel Farming. It was first introduced by William Fredrick 2600 years before. High tunnels, also known as hoop houses, are relatively simple polyethylene-covered unheated structures. It covered with one or two sheets of plastic and two layer offering better insulation and consequently more cold protection. It gives maximum yield of crops and makes easy soil preparation, picking and spraying due to its width and height. It’s much suitable for tomatoes, cucumber and sweet pepper.
Vegetable Production under high tunnel is considered for Business in this project pre-feasibility. This business is proposed to be located primarily in all temperate and sub tropical areas of the country. All aspects of tunnel farming i.e. selection of suitable crop for tunnel farming, nursery raising for off season crop, their nutritional requirement, all crop management practices and different necessary measures for productivity improvement has been studied at Vegetable Crops Research Programme, Horticultural Research Institute (HRI),National Agricultural Research Centre (NARC), Islamabad. After successful experimentation, this technology is declared technically feasible for commercial vegetable farming. The technology of tunnel farming is in the phase of extension to the farmers. Farmers are already practicing this technology at their farms. The tunnel farming can be successfully carried in Punjab, KhyberPakhtunkhwa and some parts of Balochistan. The project can be started at an area of one acre with eight tunnels of 30ft x 100 ft(3000 sq.ft) each per acre. Total cost estimate is Rs.1.542 million, with fixed investment of Rs.0.685 million and working capital amounting to Rs.0.857 million. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR), Benefit Cost Ratio (BCR) and payback period are Rs. 2,117,799,32%, 1.53 and 3.15 years respectively.
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Different methods and techniques are used for off-season vegetable
farming. However, keeping in view the economical, technical andmanagerial factors, high tunnel off season vegetable farming is suggested for the proposed project
• Location: The business can be successfully carried in Punjab, KhyberPakhtunkhwa and some parts of Balochistan.
• Product: Year round vegetable consumption is increasing in Pakistan due to changing food habits. Off season tunnel farming is the only way to fulfill this objective.
• Target Market: In addition to local consumption in the country, there is an enormous
export potential.
• Employment Generation: The proposed project will provide direct employment to
seven 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:
· Any person who is planning to adopt this technology should have some practical knowledge about farming.
· Land that is being utilized for off-season vegetable farming should be tested which will help in determining the quality of land for agriculture purposes.
· Farmer should ensure that the plant they are planning to grow must have the ability to self-pollinate under the plastic sheet.
· Selection of the seed is most important factor because this determines the productivity of the crop.
· Vegetables, which are in demand, should be cultivated, this will help in earning higher profit margins.
· Timing of cultivation of vegetables has to be done accurately. The farmer should have knowledge about the benefit that the early crop will offer and should gather data about the prices of these early crops.
7. INSTALLED AND OPERATIONAL CAPACITY FOR OFF SEASON VEGETABLE FARMING
This pre-feasibility suggests a farm operation on one acre of land with eight tunnels of size (30 x 100 ft) each.
8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The proposed location for establishment of the tunnel farming will primarily be temperate and sub tropical areas.
9. POTENTIAL TARGET MARKETS
The marketing of off season vegetables follows the traditional marketing channel, through middlemen or wholesalers at farm who identifies potential buyers and negotiate price, or directly to retailers in urban markets. The time spent in transportation, from farm to the retail shop, varies from area to area. Over the years, transportation of vegetables has improved with the use of better and refrigerated 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 vegetables. The key factors in marketing are availability of current market information, quality of vegetables and supply & demand which will determine the selling price.
10. PRODUCTION PROCESS FLOW
The overall production cycle for the off season vegetable farming comprises of 4-8 months, depending upon the crop. In case of tomato, the production cycle will take eight months to achieve the desired output.Following is the production process flow of off- season vegetables farming:
Figure 1: Production flow of off- season vegetables
Sowing& Picking Period Of Off -Season Vegetables
Following are sowing and picking periods of selected off-season vegetables in their respective normal growing seasons:
Table 1: Sowing and picking period for the selected off--season vegetables
vegetables / Sowing period / Picking periodTomato / October (Nursery)
November (Transplantation) / February-May
Cucumber / End of October to end of
December (direct seeding) / Mid January to May
Sweet peppers / Mid of September to 1st week of October
End of October to 1st week of November (Transplantation) / End of January toSeptember
Temperature Requirements for Best Growth of Vegetables
Temperature is much important in off-season vegetables.Following are the temperature requirement for the off-season vegetables
Table 2:Temperature Requirements for Vegetables
Vegetables / Temperature RequirementsTomato / 29-21
Cucumber / 24-18
Sweet pepper / 24-21
11. PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of off- season vegetable farming 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.
11.1ProjectEconomics
The following table shows the Net Present Value (NPV), Benefit Cost Ratio (BCR), Internal Rate of Return (IRR) and payback period.
Table 3.Project Economics
Description / DetailsNet Present Value (NPV) / 2,117,799
Benefits Cost Ratio (BCR) / 1.53
Internal Rate of Return (IRR) / 32%
Payback Period (years) / 3.15
Returns on the scheme and its profitability are highly dependent on theentrepreneur having some practical knowledge about agriculture & farming,selection of fertile land, selection of best seed, cultivating the in-demandvegetables and selection of right time for vegetable cultivation.
11.2Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 4: Project Financing
Description / DetailsProject life (Years) / 10
Equity Ratio (10%) / 154200
Debit Ratio (90%) / 1387800
Interest Rate on Loan / 8%
Debt Tenure (Years) / 8
11.3 Project Cost
Following requirements have been identified for operations of the projectedbusiness:
Table 5.Total Project Cost
Capital Investment / Amount (Rupees)Capital Cost (one time investment) / 685000
Initial operational cost / 857000
Total Cost / 1542000
11.4 Space Requirement
Following is the space requirement for the construction of Eight Tunnels for the Project.
Table 6.Space Requirement and its Cost
Space Requirement(30x100 Sq. ft.) / Cost
Rs./ tunnel / Quantity
(No) / Area (Acre) / Total Cost (Rs.)
Construction of tunnels / 80,000 / 08 / 01 / 640,000
Total / 640,000
11.5Machinery and Equipment
Following table provides a list of machinery and tunnel farm equipment required for Off-Season Vegetable Farming (High Tunnel).
Table 7.Machinery&EquipmentCost
Description / Quantity(No) / Unit Price (Rs.) / Total (Rs.)
Tube Well and Channels including boring & motor / 01 / 250,00 / 250,00
Electricity connections / 20,000 / 20,000
Total / 45,000
11.6 Operational and Maintenance Cost
Following table provides list of Consumable Requirement for off season vegetable farming.
Table 8.Operational & Maintenance Cost
Description / No. / Unit Price / TotalPlastic Cost / 120000
FYM Cost / 10000
Chemical Fertilizer Cost / 12000
Land Lease expenses / 50000
Land preparation expenses / 10000
Seed Cost / 25000
Labor expenses / 6 / 11000 per month / 528000
Nursery raising expenses / 12000
Herbicides and insecticide Cost / 50000
Irrigation Cost / 40000
Total Cost / 857,000
11.7Human Resource Requirement
The table below provides details of human resource required to manage basic tunnel farm. The staff salaries are estimated according to the market trends. However, these requirements and pay scales may vary area to area.
Table 9. Human Resource Requirement and its Cost
Description / No. of Employees / Salary/person/ month / Total salary per yearLabour / 6 / 11000 / 528000
11.8Revenue Generation
Final product of tunnel farming is vegetable that will generate revenue. The proposed crop mix is tomato, cucumber and sweet pepper and the average capacity of farm is 35000, 40000 and 8000 kg per acre with sale price as per market Rs. 50, Rs. 40 &Rs. 50 respectively.
Table 10. Revenue and production of the project
Vegetable / Land Utilization(Acre) / Production Quantity (Kgs/Acre) / Total Production Quantity (kgs) / Sale Price Rs./Kg / Amount
Tomatoes / 0.33 / 35000/- / 11550/- / 60/- / 693000
Cucumber / 0.33 / 40000/- / 13200/- / 40/- / 528000
Sweet Pepper / 0.33 / 8000/- / 2640/- / 50/- / 132000
Total Amount / 1353000
12. KEY ASSUMPTION
Particulars / AssumptionSales Price Growth Rate / 5% per year
Increase in cost of raw material / 5% per year
Increase in utilities / 5% per year
Debt/Equity Ratio / 90:10
Plant Building Maintenance Expenses / 10%
Machinery Maintenance Expenses / 10%
Loan Period / 8 years
Grace Period / 1 year
Loan installments / Yearly
Financial charges (interest rate) / 8%
i
13. FINANCIAL ANALYSIS
Table 11. Project Income Statement
Years / Capital Cost / R&M/Depreciation / Variable Cost / Total Cost / Benefits / Cash Flow / Installment/Year / Income after Installment / Present Value Cost / Present Value Benefit / Discount Factor
0 / 1542000 / 1542000 / 0 / -1542000
1 / 0 / 34250 / 857000 / 891250 / 1353000 / 461750 / 123360 / 338390 / 891250 / 1353000 / 1
2 / 0 / 34250 / 899850 / 934100 / 1420650 / 486550 / 296176 / 190374 / 864907 / 1315416.67 / 0.926
3 / 0 / 34250 / 944843 / 979092.5 / 1491682 / 512590 / 296176 / 216414 / 839414 / 1278877 / 0.857
4 / 0 / 34250 / 992085 / 1026335 / 1566266.6 / 539932 / 296176 / 243756 / 814738 / 1243353 / 0.794
5 / 0 / 34250 / 1041689 / 1075939 / 1644580 / 568641 / 296176 / 272465 / 790847 / 1208815 / 0.735
6 / 0 / 34250 / 1093773 / 1128023 / 1726809 / 598786 / 296176 / 302610 / 767714 / 1175237 / 0.681
7 / 0 / 34250 / 1148462 / 1182712 / 1813149 / 630437 / 296176 / 334262 / 745309 / 1142592 / 0.630
8 / 0 / 34250 / 1205885 / 1240135 / 1903807 / 663672 / 296176 / 367496 / 723607 / 1110853 / 0.583
9 / 0 / 34250 / 1266179 / 1300429 / 1998997 / 698568 / 702581 / 1079996 / 0.540
10 / 0 / 34250 / 1329488 / 1363738 / 2098947.1 / 735209 / 682209 / 1049996 / 0.500
1542000 / 10779254 / 11121754 / 2266863 / 4354135 / 7822576 / 11958136
i