BioAust Health
Unikem
Dongxia Trading
A Joint Proposal
to
Hunan Provincial Management Department(CGC)
for the
Establishment of an Innovative Processing Facility
for
Citrus
Taro and Root Crops
Pumpkin
Phytonutrients and Essential Oils
Purpose of the Proposal
This proposal has been jointly prepared by Unikem and Dongxia Trading for the purpose of providing the Hunan Provincial Yongzhou City Huilongxu Management Department(CGC) with an innovative proposal for establishing a provincial fruit processing centre dedicated to value added products. The aim of the proposal is that of providing infrastructure that will enhance rural incomes and regional wealth by increasing the value of farm produce.
Background and Prior Activities
This project proposal resulted from discussions between the CGC and Unikem. In turn Unikem invited BioAust to prepare a business proposition for discussion. The owners of BioAust decided that as a business partner it would be more appropriate for their Hong Kong registered company Dongxia Trading to be the business partner. The companies of the BioAust Group, BioAust Health and BioAust Energy, would be involved in both project development and as customers for the essential oils and phytonutrients.
A preliminary market assessment was made by Unikem and Dongxia Trading and disclosed the volume and value propositions for markets in frozen citrus juices, processed taro products and pumpkin products. In summary the research showed:
- Korean markets were fast growing for citrus and other fruit juices.
- Japanese markets for frozen juices were steady with specialty areas in grapefruit. Taro products were widely consumed.
- There were market propositions for non-dairy, gluten free value added products made from taro.
- Pumpkin powder (particularly organic), pumpkin oil and processed seeds were growing markets in food processing and for specialty health products.
- All products could claim a market premium if they were organically produced.
- Particular importers in a number of countries were identified as market entry points
- A meeting was held with Bright Foods/Manassen in Sydney to discuss the potential for future trade with the Bright Foods group.
An analysis was made of the existing produce, the potential markets for value added products manufactures from the produce, the international prices and an estimate of the cost of production. This showed it would be possible to establish a regional production facility that would reach an annual turnover of about RMB 650,000,000 having a gross profit margin of RMB 200,000,000.
This preliminary analysis underpins the proposal and will form the starting point for the market research/feasibility study that will define the shape of the business and the final array of technologies that will be required. In this proposal a number of technologies has been identified and costed as the basic design. It is not expected that these will change substantially although the size of individual units may change. All equipment will be purchased in China and suppliers have been identified. The modular nature of the processing plant would allow it to be replicated across the Hunan Province.
Understanding of the Project
The proponents of the project understand that CGC has an economic plan to enhance regional growth through the value adding of primary produce. The Hunan Province is a major producer of citrus fruit having some 60,000ha of orchards. In addition there are many other crops and of these Taro and Pumpkin offer good prospects for value adding.
The CGC would finance the project by providing loan finance and land to the proponents. This would be on a commercial basis.
It is the CGC strategic direction to support value adding of farm produce through infrastructure development using industry partnerships.The government of Yongzhou city introduced two new policies to promote the economic development on 14thJanuary 2015.
The deliverables under this proposal are aimed at meeting the government objectives and will include:
- Market identification and agreement with major players in China, Japan and Korea for product off-take agreements or expression of interest prior to commencing construction.
- Design, construction and commissioning of a processing facility having innovations in technology and products.
- Provision of skilled management and marketing expertise to ensure sustainability of the enterprise at a national and international level
- Expansion of organic farming methods to increase the market leverage for price of organic value added products.
- Completion of a bioenergy system having the capacity to supply green energy for plant operation and excess power sales to the regional grid supply system.
- A comprehensive business plan based on sound financial principles for company growth and creation of high regional wealth creation.
Scope of the Development
This proposal is based on three primary crops although the processing plant will have the capabilities to take in other crops having a high value. As all of the crops are seasonal in production produce cool storage facilities are proposed to even out the processing requirements.
The basic model has been built on the supply of:
Citrus Fruit – (Oranges, grapefruit, tangelos) providing 50,000t/y of mature ripened fruit for processing. This quantity is considered to be at an economic level for a processing plant. There has been no distinction made as the type of citrus processed. Indications from the market are that grapefruit offers the best returns although volume may not be large as yet.
Taro – The model used shows a higher quantity of Taro being processed that was indicated in the data provided. This can be a growth area as Taro is a high producing crop and extra production may be made. The facility would be designed to process 35,000 tonnes of root crop. This could include sweet potato and yams as well as taro. The market indication is that taro value added products would meet many of the requirements for gluten free, low GI, non-dairy and high fibre health foods that are fast growing in many countries. These products could be alternatives to dairy products and the taro flour used to reduce gluten in baked products.
Pumpkin – This has been treated as a notional intake of 20,000t/y. There are markets that have a premium price for organic pumpkin powder, seed and seed oil. The model has been built around the production of spray dried pumpkin powder and seed products. An alternative to powder production is that producing pumpkin flour for baked products. Although pumpkin contains carotenoid pigments these have not been included for extraction although the value of these compounds is high.
Secondary Processing – There are secondary products that may be extracted from the waste materials. Citrus fruits provide the opportunities for cold pressed and refined citrus oils. There is a large market for orange oil although the price varies. Grapefruit and other citrus oils offer higher values. The orange peel has to be processed for both oil and bioflavonoid removal in order for it to be used in bioenergy production. The bioflavonoids are high value products and will be extracted and refined. The pumpkin pigments may also be extracted and have a high value. In addition this processing area may be used for refining the Litsea essential oil (possibly others) produced in the region. It is proposed that super critical carbon dioxide technology be used for these high value refined products and that the carbon dioxide from the bioenergy plant be used.
Bioenergy –The estimates of processing wastes are of the order of 23,000t/y. This would be used in a biogas system to provide the energy for plant operation. The proposal includes the separation of the methane from the carbon dioxide. The methane would be used for electricity generation and direct firing for steam production and drying (including spray driers). The carbon dioxide would be captured and cleaned for use as a solvent in extraction and also catalytically reformed into formate for enhancing biogas production and sold as a formic acid. The aim is to have almost zero emissions of methane and reduced carbon dioxide from the biogas system. The technologies used are those developed by BioAust Energy.
Proposed Major Technologies
Each process has been flow charted as the provisional production pathways and these are shown in the appendix. They are all off the shelf plant and equipment except the bioenergy methane separation and carbon dioxide reforming methods and these will be provided by BioAust Energy using local production.
Citrus Processing Technologies – These are standard lines except that the concentration equipment will be centred on ceramic membrane technology. The aim is to use low energy/temperature processing that will enhance the flavour of the concentrated juices. There will be the ability to add back the pigments and oil to give the juice the required colour and flavour.
Taro Processing Technologies – while the bulk product will be Taro powder for sale to manufacturers the innovative products will be in fermented and fruit flavoured products for sale to retailers. These require standard dairy processing equipment and may include some soy additions. These are relative inexpensive in capital terms.
Pumpkin Processing Technologies – The main line is dedicated to membrane concentration of the puree to the required solids and then relatively low temperature spray drying. Enzymatic treatment is provided to reduce the fibre. The seed processing will be a conventional line and seed diverted to oil production will be produced as cold pressed pumpkin oil.
Project Stages and Methodologies
It is proposed that this project be conducted in stages and at the end of each stage all stakeholders shall be involved in the decision to move to the next stage.
Stage 1: Stakeholder meeting to define project scope, agreement on content of stages, roles and responsibilities, reporting and cost.
Stage 2: Confirmation of pre-feasibility study conducted by Unikem and Dongxia Trading by industry contacts, national and international company contact, expressions of interest obtained from future buyers. Definition of volume and value based on market prices and indicative off take from major buyers. Customer specifications for products. Meeting of stakeholders and decision to move to next stage.
Stage 3:Crop seasonality variation and future potential analysis. Facility design and agreement with stakeholders on cost of construction and timing. Determination of scale up timing if required. Agreement to proceed.
Stage 4: Contractual supply of building/or lease of existing building purpose built for the design. Specifications and quotations for equipment supply. Issue of contracts to suppliers. Construction commencement to design requirements. Overseeing of project by specialist project managers.
Stage 5: Recruitment of key management and staff. Commissioning of plant to operating specifications. Production of products to customer specifications.
Stage 6 Review with stakeholders of the process and the outcomes.
Project Rationale: Product Outcomes and Value Propositions
The pre-feasibility study disclosed the major markets, historic and current data on volumes and values for fruit products in several countries and the opportunities for new products. The data and information from this study indicated that a viable business could be established with the right investment and if markets/marketing partners were defined before development commenced. A summary of the data is shown in the table below:
Produce / Products / Market / Market direction / Value/tonne, ,000USOrange / Frozen juice / Korea / Fast growth / $2.4-$3.5
Japan / Stable
Orange Oil / International / Steady growth / $4-$10
Flavonoids / International / Rapid growth / $30 to $100
Grapefruit / Frozen juice / Korea/Japan / Fast growth / $3 to $8.6
Essential oil / International / Rapid growth / $145-$239
Taro / Frozen taro / China, Korea Japan / Stable / $3 to $7
Taro fermented / USA Pacific / Steady growth / $7 to $186
Taro powder / International / Steady growth / $3
Flavoured taro powder for ice cream/drinks / China, Taiwan Japan Korea / Steady growth / $5 to $7
Pumpkin / Spray dried powder / International / Steady growth / $10 to $65
Organic spray dried powder / International / Rapid growth / $120
Freeze dried pumpkin soup / China Japan / Not known / $15 to $25
Pumpkin dried seed / International / Steady growth / $2 to $4
Organic Pumpkin seed / International / Rapid growth / $10 to $15
Pumpkin pigments / International / Steady growth / $60 to $100
Pumpkin seed oil / International / Steady growth / $5 to $10
Organic $20 to $50
Pumpkin powder / International / Steady growth / $2 to $6
Pumpkin extract / China / Not known / $15 to $30
This study indicated the gains to be had from production of organic products. However there would need to considerable work done to have farms accredited as organic producers. The diversity of products showed that the production facility could be made to be flexible in output and switch from one product to another very quickly as markets changed.
Financial Analysis – Cost of Establishment
The flow sheets and the factory layout diagrams (see appendix) were used to estimate the facility establishment costs. The prefeasibility analysis, based on a processing and cool store area of approximately 6,000m2, indicated the major cost components would be:
Construction 6000m2 at $950/m2$ 5,700,000
Citrus processing lines$11,800,000
Taro processing lines$ 5,600,000
Pumpkin lines$ 2,860,000
Secondary processing$1,750,000
Bioenergy plant$3,750,000
Development costs $ 500,000
Total Facility development cost $31,960,000
Financial Analysis – Operating and Gross Profit
A number of data and information sources were collected in the pre-feasibility study. Historic file data was also available regarding costs and a survey was made of the suppliers of the major equipment that would be used in relation to capacity and price. The attached spread sheets contain this data and explain the assumptions made in preparing the data. The analysis indicated that a viable and sustainable business could be established using multiple types of farm produce in a value adding system. The validity of these assumptions and the accuracy of the numbers would be substantiated in Stage 1 of the project. This particularly applies to the taro products as some prior marketing and production ramping may be required to reach the proposed volumes of new products.
Human Resource Issues
The success of this project will be in the hiring of skilled and educated management persons having prior experience in food processing in multiple product facilities. This includes expertise in sales and marketing at the retail and wholesale levels across several levels of the food industry in China and near Asian countries.
The management of both Unikem and Dongxia Trading have considerable experience in national and international trading in consumer and food products. This expertise will assist in giving guidance to the selected management team.
The pre-feasibility study indicated several opportunities for new products. To this end there has been included in each product group research and development staff who will have the capacity to support the manufacturing and marketing efforts with new products.
Included in the research and development capability is that of moving the agricultural sector toward more organic production. This can be supported by the BioAust Health Company that has developed botanical pest control products and can supply expertise from Prof Errol Hassan at the University of Queensland who will support local advisers and researchers.
The consistent supply of produce from the regional growers will be very important to company operation. To this end the staffing includes specialist advisers who can maintain strong linkages with growers. This staff group will be important for the transition of growers into organic production. This offers the opportunity for maintaining market feedback to growers in order for them to make informed choices in growing crops.
Environmental Issues and Energy
The project proposal is very strong on environmental issues to prevent waste contaminating water supplies, rivers and lakes. The use of a bioenergy system will provide an economic source of energy for processing and as a revenue stream. In turn it will prevent waste contaminating the environment and the residues may be used in organic farming systems. BioAust Energy has prior experience of installing these systems into Chinese agriculture.
BioAust Energy has other technology that may have application for turning the biogas into distillate for on farm use. This might be considered at a later date as the biogas system may be expanded using other farm wastes.
The carbon dioxide separated from the biogas would be cleaned, compressed and used for the solvent source in a supercritical carbon dioxide process for separating the high value bioactives and essential oils.
BioAust Energy has catalytic technology for converting carbon dioxide into carboxylic acids. This technology may be introduced later to increase biogas production by about 20% and create another revenue stream for the organic acids.
Prior Projects in Processing and Energy
The two companies that will be closely involved during the development stage are BioAust Health and BioAust Energy. The senior management team has been involved in energy systems and food processing for many years. Below is a collection of prior projects that have been undertaken.
Alan Twomey Executive Director
Holds graduate and post graduate degrees in agriculture and food technology. He was the Director of the New Zealand National Dairy Laboratory, International marketing manager for a US company in waste energy recovery and an international consultant. He is the major shareholder of the BioAust Group of companies and has an association with several Chinese companies in product development. He is the holder of the Mike Ahearn Medal for Quality Management leadership in Australia. Projects that Alan has led include: