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CASE STUDY: THE PROPOSED SLAUGHTERHOUSE PROJECT
As a basic requisite to “Project Feasibility Study” preparation, this exercise is
designed to train participants/students in the preparation and analysis of projected financial
statements (Income Statement, Cash Flow and Balance Sheet Statement). It systematically
illustrates the steps involved in financial projection using pre-determined set of financial
assumptions.
The exercise likewise aims to enhance the student-trainees’ mathematical and
analytical skill in analyzing the different measures of project worth to determine the
financial/economic viability of the proposed project.
Expected Output
:
10-year Projected Financial
Statements (A)
Measures of Project Worth (B)
Working Time
:
4.5 hours (Set A);
1.5 hours (Set B)
Materials Needed
:
Calculator, spreadsheets, pencil
and eraser
_______________
Prepared for the participants of UEP-MIRD “Training on Project Development and
Appraisal” by Clodualdo V. Velasco, Asst. Professor, Agribusiness Management, College of
Agriculture, Central Luzon State University, May 24-28, 1993.
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SLAUGHTERHOUSE PROJECT
A Feasibility Study
1.0 INTRODUCTION
The municipality of Los Baños has identified several projects to hasten its
social and economic growth. Included in its list of priorities is the establishment of a
larger slaughterhouse to serve the slaughtering services need of its growing populace.
The construction of a new slaughterhouse facility has been prioritized by the
municipality due to the “foreclosure order” of National Meat Inspection Commission
(NMIC) in its existing small and unsanitary slaughterhouse in the town proper. Since
the existing slaughterhouse has already been serving a larger population than before,
the municipality can’t do otherwise but to comply with the order.
With the existence of MINUTE II – FRINGE for funding, it is deemed very
timely for Los Baños to accelerate the implementation of such infrastructure.
1.1 The Existing Slaughterhouse of Los Baños
The existing slaughterhouse facility in Los Baños is located near the town’s
public market and the municipal hall. The site has a total land area of 100 square
meters which mainly houses the main slaughterhouse building. The facility has no
holding pens and sewage treatment system. Wastewater is simply discharged along
the adjacent Laguna Lake.
The small abattoir has been managed and operated by the municipal office and
has four staff (a meat inspector, a collector and two utility men). Slaughtering is done
by the meat dealer’s hired butchers.
1.2 Rationale/Justification of the Proposed Project
Recently, the National Meat Inspection Commission (NMIC) conducted an
ocular inspection and evaluation of the present slaughterhouse in Los Baños. The
result of evaluation called for the foreclosure of the slaughterhouse for it is already
deemed unfit for continuous operation. It was revealed that the existing facility has
the following weaknesses: (a) very poor waste disposal system, thereby making it
unsanitary; (b) too small to serve the present demand; (c) very near the public market;
and (d) very congested.
_______________
Excerpt of the Project Feasibility Study prepared by Clodualdo V. Velasco, Asst.
Professor, Agribusiness Management Department, CLSU, Muñoz, Nueva Ecija, March 1991.
Other details and exhibits of the PFS are found in the main text.
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Because of the slaughterhouse’s smallness relative to the increasing demand
for slaughtering services, there are usual incidents in Los Baños market wherein the
meat sold are slaughtered in private residences. It is therefore evident that there are
meat sold which haven’t passed through the slaughterhouse and have not been
properly inspected by the market authorities. Such incidence is one clear violation of
a municipal ordinance regarding inspection of meat before it should be sold to the
consuming public.
As per record, average animal slaughtered in Los Baños market was 50 head
of hogs daily and 3 head of cattle per week. Based on an interview, however, meat
dealers in the public market reported that they had been selling more than the number
of animals being slaughtered. It is estimated that there are more or less 20 hogs being
sold in the public market which have not been properly inspected and slaughtered in
the existing slaughterhouse.
2.0 Objective of the Project Study
Since it is imperative that a new and bigger slaughterhouse be established in
Los Baños, it is therefore the purpose of this project study to determine the
viability/feasibility of relocating the existing “district type” abattoir and converting
such into a “satellite type” abattoir.
3.0 Description of the Proposed Slaughterhouse Project
3.1 Type and Capacity of the Proposed Abattoir
A “satellite type abattoir” with livestock pen or lairage will be constructed to serve
the animal slaughtering service need of Los Baños, Bay, Calauan and Victoria municipalities.
The proposed abattoir will have a slaughtering capacity of 200 per day. Capacity
utilization during the first two years is initially targeted at 80-90%. Thereafter, full capacity
utilization is expected.
3.2 The Proposed Location
As inspected and approved by the National Meat Inspection Commission (NMIC), the
slaughterhouse project will be put up in Barangay Bayog at Los Baños.
The proposed site is presently owned by the Sapin Family which could be possibly
negotiated for lease, outright purchase or installment basis.
3.3 Size and Cost of Construction Site
The proposed project will be put up in a 3,200 sq. meter lot at an estimated cost of
P200 per sq. meter. Total assessed value of the land, if purchased, is P640,000.
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3.4 Size of Building and Holding Pen
A 500-square meter slaughterhouse and 200-square meter holding pen will be
constructed out of the 3,200 square meter lot. Construction of these establishments will be
strictly based on the approved NMIC specifications.
*Note: Space requirement
A. Holding pen
Hogs (1.2 sq.m./head 100 heads)
120 sq.m.
Cattle (2.2 sq.m./head 10 heads)
22 sq.m.
Space allowance
58 sq. m.
B. Building (Slaughterhouse)
C. Remaining space (for parking space, driveway,
drainage, fencing, office and garage)
TOTAL
200 sq.m
500 sq.m.
2,500 sq.m.
---------------3,200 sq.m.
3.5 Tools and Equipment Needed
Being a semi-mechanized slaughterhouse, the tools and equipment to be acquired is
also based on the NMIC Guidelines. The itemized list of tools and equipment as shown in the
Guidelines will have a total cost of P200,000 (based on the specification and price quotation
as submitted by the supplier).
4.0 Organization, Management and Manpower
4.1 Organizational Structure
The project will be headed by a slaughterhouse supervisor who will be acting also as
the animal and meat inspector. Under the supervisor will be one (1) fee collector/bookkeeper,
two (2) live-in utilitymen, one (1) equipment maintainer-operator, and two (2) butchers.
4.2 Personnel Recruitment and Job Specification
The supervisor, being the only skilled personnel required in the proposed project will
be hired on a temporary/permanent status. He must be a veterinarian to effectively handle
ante-mortem, post-mortem and meat inspection activities.
The fee collector-bookkeeper will be hired as a regular employee and must at least
have a background on simple bookkeeping. The live-in utilitymen, the equipment maintaineroperator and the butchers will also be hired as a regular employee and should at least be high
school graduates. The utilitymen should know how to drive to also act as driver of the
project’s service jeep.
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4.3 Personnel Compensation
The supervisor will be compensated at the rate of P3,500 per month; equipment
operator-maintainer at P3,000 per month; fee collector-bookkeeper, P2,700 per month;
utilitymen/drivers, P2,500 per month; and butchers, P2,500 per month. Clothing allowance
for uniforms will be given at P500 per annum. Thirteenth month pay plus P1,000 cash gift
will also be provided as bonus at the end of the year.
4.4 Slaughtering Arrangement
Butchers being hired by the animal owners will be asked to directly report to the
supervisor for proper guidance and policy compliance. They will be assisted by the regular
butchers of the slaughterhouse.
5.0 Slaughtering Service Demand Situation
5.1 Current Demand for Slaughtering Service
In Los Baños, average hog slaughtered daily is recorded at 50 heads and only 3 for
cattle weekly. Bay municipality reported that hog slaughtered averages 10 daily. Being a less
populated municipality than Los Baños, Victoria and Calauan municipalities is estimatedly
averaging 10 heads each also.
Considering the uninspected meat and/or animal being slaughtered outside the Los
Baños small abattoir, it can be estimated that additional 15-20 heads are being sold by meat
vendors in the two public markets of Los Baños daily (Bayan Market and Crossing Market).
5.2 Projected Slaughtering Service Demand
The demand for slaughtering service as shown in 6.8 is projected based on the
following variables:
(1)
(2)
(3)
Household population in the target service municipalities.
Per capita consumption of pork and beef (5.5 kg. for beef and 12 kg. for pork).
Average population growth rate of 2.2% per year.
6.0 Financial Highlights of the Proposed Project
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6.1 Capital Outlay
Items
Estimated Value
Land (3,200 sq.m. @ 200/sq.m.)
Land improvement and/or development
(20% of land cost)
P640,000
Buildings:
A. Slaughterhouse (500 sq.m.
@P3,000/sq.m.)
B. Holding pen (200 sq.m.
@ P1,260/sq.m.)
Fencing 3200 sq.m. (56x57x2m, @P200/m)
Laborer’s Quarter (25 sq.m.
@P1,500/sq.m.)
Office (25 sq.m. @ P1,500/sq.m.)
Deep-Well and Water Tank
Septic Tank and Water Sewage System
Service Jeep with Trailer (reconditioned)
Garage (30.8 sq.m. @ P1,500/sq.m.)
Office Furnitures and Fixtures
Slaughtering Tools and Equipments
(Two acquisitions: 1991 and 1996)
Installation Costs
Other Fixed Assets
1,752,000
128,000
P1,500
252,000
Total Project Costs
Note: Depreciable Assets
(Land excluded)
A) 10 year assets P2,528,970/10
B) 5 year assets P200,000/5
Total Annual Depreciation
=
45,200
37,500
37,500
170,000
150,000
120,000
46,270
20,000
200,000
12,500
10,000
--------------P3,368,970
P 2,728,970
ANNUAL DEPRECIATION
P252,897/year
40,000/year
------------------P292,897/year
6.2 Capital Requirement
A. Initial capital outlay
B. Pre-operating expenses
C. Working capital
TOTAL
P3,368,970
20,000
30,000
--------------P3,418,970
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6.2 Sources of Financing
% Share
A. Grant-in-aid
B. Loan
C. Municipal Equity
45
45
10
------100%
TOTAL
Amount
Individual Cost
of Capital
P1,538,536.50
1,538,536.50
341,897.00
-----------------P3,418,970.00
8%
16%
8%
Note: Cost of capital using grant-in-aid and municipal equity is based on the
opportunity cost of capital (depository rate) while loan is charged with
16% borrowing rate per annum.
6.4 Sources of Revenue
A. Holding fee
B. Slaughter fee
C. Ante-mortem fee
D. Post-mortem fee
TOTAL
E. Hauling fee
(back and forth)
HOG
(P/head) Percentage
P0.60
2.1%
26.65
93.2%
1.25
4.4%
0.10
0.3%
---------------P28.60
100%
P/HOG
P3.00
CATTLE
(P/head) Percentage
P1.00
2.3%
40.00
93.0%
2.00
4.6%
0.10
0.2%
----------------P43.10
100%
P/CATTLE
P10.00
Note: 1) All charges is assumed to increase by 5% every two years.
2) Proceeds for ante-mortem and post-mortem fee will be remitted
to NMIC.
6.5 Operating Expenses/Assumptions
A. Wages and salaries
1 Supervisor (at P3,500/month)
1 Fee collector-bookkeeper (P2,700/month)
2 live-in utilitymen/drivers (P2,500/month)
1 Equipment maintainer/operator (P3,000/month)
2 Butchers (P2,500/month)
Total (at 10% increase every 2 years)
P42,000
32,400
60,000
36,000
60,000
------------P230,400
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B. Other incentives
B.1. Uniform allowance (500/year/employee)
B.2. Bonus (13th month pay + P1,000)
Total (at 10% increase every 2 years)
P3,500
26,200
----------P29,700
C. Electric bills (P2,000/month at 5%
increase yearly)
24,000
D. Water bills (P500/month at 5%
increase yearly)
6,000
E. Office supplies (P1,000/mo.; 5%
increase every 2 years)
12,000
F. Fuel, gasoline, lubricants (P5,000/mo.;
5% increase yearly)
60,000
G. Repairs and maintenance (P3,000/mo.;
5% increase yearly)
36,000
H. Depreciation (using straight-line method;
refer to depreciation schedule);
292,897
(at zero salvage value)
I. Interest (16%/annum; refer to
Loan Amortization Schedule)
J. Insurance (2% of vehicle, building
and equipment costs)
41,400
K. Amortization of pre-operating expenses
(POE); refer to “POE” amortization schedule
L. Contingency Allowance
4,000
1% of total
operating expenses
6.6 Pre-operating Expenses
(Includes test run expenses, personnel’s
pre-training, registration, feasibility
study preparation)
Note: Pre-operating expenses will be amortized at
5 equal annual payments starting 1992.
P20,000
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6.7 Loan Repayment Scheme
- Amount of Loan
P 1,538,536.50
- Date of Release
1991
- Repayment Term
6 equal annual payments
starting 1996
- Grace period
5 years
- Interest Charge (Soft Loan)
with 5 years grace period
16% per annum
6.8 Projected Volume of Animals to be Slaughtered:
Year
-----1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
No. of Hogs
-------------62,400
66,200
67,000
68,000
73,400
71,350
73,010
77,000
77,200
77,800
No. of Cattle
---------------660
670
674
678
802
806
810
814
818
1,002
Note: The projected volume of animals to be slaughtered
includes allowances for added demand during holidays
and special festivities (e.g. fiestas, Christmas, etc.).
6.9 Hauling Revenues
Volume of animals to be hauled and delivered is assumed to be 30% of the
projected volume of animals to be slaughtered yearly.
7.0 Income Tax
No income tax as the facility would be operated by Los Baños Municipality.