Contents
EXCUTIVE SUMMARY .......................................................................................................................................... 1
1.1
1.2
1.3
II.
BRIEF HISTORY OF AGRICULTURAL MECHANIZATION IN ETHIOPIA ................................................................. 2
KEY SUCCESS AND RISK FACTORS .................................................................................................................................. 3
MITIGATING PLAN FOR RISK MANAGEMENT ................................................................................................................... 4
MARKET STUDY ........................................................................................................................................... 4
2.1 DEMAND OF MECHANIZATION SERVICE ............................................................................................................. 4
2.2 SUPPLY OF MECHANIZATION SERVICE ............................................................................................................................ 4
2.3 DEMAND SUPPLY GAP ................................................................................................................................................ 4
2.4 MARKET ARRANGEMENT AND CHANNEL ........................................................................................................................ 5
2.5 PRICE OF ANALYSIS .................................................................................................................................................... 5
2.6 SWOT ANALYSIS ...................................................................................................................................................... 5
TABLE 2: SWOT ANALYSIS ................................................................................................................................................... 5
III.
TECHNICAL STUDY ................................................................................................................................ 6
3.1
3.2
3.2.1
3.3
3.4
3.5
IV.
PROJECT LOCATION.................................................................................................................................................... 6
PRODUCT DESCRIPTION ....................................................................................................................................... 6
AGRICULTURAL FARM TECHNOLOGY AND PROCESS...................................................................................................... 6
TYPES OF AGRICULTURAL MACHINERIES ......................................................................................................................... 7
PROJECT MACHINERY AND IMPLEMENT .......................................................................................................................... 8
BUSINESS RUN PROGRAM ........................................................................................................................................... 8
ORGANAIZATION & MANAGEMENT ............................................................................................... 9
4.1
4.2
4.3
ORGANIZATIONAL STRUCTURE ..................................................................................................................................... 9
MANAGEMENT ....................................................................................................................................................... 10
AVAILABILITY OF MAN POWER ................................................................................................................................... 10
V.
FINANCIAL ANALYSIS ............................................................................................................................. 11
5.1
FUND ALLOCATION .......................................................................................................................................... 11
5.2
SOURCE OF FINANCE ........................................................................................................................................ 11
5.3
EXPECTED FINANCIAL RESULTS ........................................................................................................................ 11
5.3.1
PROFIT/LOSS FORECAST .............................................................................................................................. 11
5.3.2
CASH FLOW FORECAST ................................................................................................................................ 12
5.3.3
BALANCE SHEET PROJECTION ...................................................................................................................... 12
5.3.4
FINANCIAL RATE OF RETURN ....................................................................................................................... 12
VI.
SOCIO ECONOMIC BENEFIT AND ENVIRONMENTAL IMPACT .............................................. 12
6.1.
SOCIO ECONOMIC BENEFIT .............................................................................................................. 12
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Excutive Summary
Sileshi Urgessa Agricultural Mechanization is a private limited company which is established in
2022 with a registered paid up capital of Birr 2,000,00.00 to provide agricultural mechanization
service to South West Shoa Zone; Becho and Ilu Woreda which is catchment area of the project.
The Zonal farmers has accomplished so many agricultural practices to increase the production and
productivity of the sector on which most of their economy is relaying on; which is rain feed and
irrigation agricultural practice. Currently, the regional and federal gov’ts are insisting all farmers to
mechanize their agricultural practices using different agricultural mechanizations machines,
impliments and inputs for better productivies.
I am applying to you for procurements of two tractotrs with all accessories materials (two
agricultural tractors and two discs plougher and additional two discs plougher for reserve purpose)
using lease financing modality of banks. .
Sileshi Urgessa Agricultural mechanization sole-propretership is found in Oromia Regional State
Sebeta town. The project is located in Ilu and Becho Woreda by renting shade for shalter, where
about more than 20,393 ha of land demands agricultural mechanization technologies and inputs as
per the data from South West Shoa Zone. These machineries and their impliments can facilitate the
achievement of agri- mechanization goal of the zone through enhancing farming practices; by this
project around 1,760 hectars of land to be ploughed per annum; which is going to be established as
Private Limited Company in 2014 E.C with a paid up of Capital birr 2,000,000 with a capacity of
110 HP each.
Regarding to the business management, the owner, Ato Sileshi Urgessa is proposed to manage this
standard Agricultural Machinazation as a General Manager. He has well strengthened educational
background, and has more than 10 years work experience in government and private institutions.
Based on this ample experience, he can manage the campony in right ways that make it the
cammpany profitable.
The project will have a significant socio-economic contribution through improving agicultural
productivity, replacing traditional farming labour force by aricultural machineries and impliments
which can reduces working hours per hectar of cultivable farm, creating exposure of such types of
technological agricultural practices, create employment opportunities for those who has agricultural
technology operation and implementation skills and for other who has vital role in comencement of
1
this project ,and satisfying the governmental agenda of transforming our countries agricultural
practices.
The financial projections indicate that the project is viable. And, the total investment of the project is
estimated to be Birr 5,600,000.00 out of which Birr
20%(ETB 1,120,000.00) down payment
covered by the owner and the remaining 80% which is birr 4,480,000 is covered by Development
Bank of Ethiopia, DBE.
The financial analysis prevails that the project will generate revenue of Birr 6,720,000.00 in the first
year and Birr 7,567,812.00 at the second year. The cash flow projection also indicates that there is a
positive growth throughout the projection year i.e., initially the cumulative cash flow is Birr
657,758.00 which rises to Birr 2,517,842.00 at the seventh year which implies that there will not be a
problem in cash throughout the projection year. The total loan amount will be repaid in five years
with 10 installments starting with equal installment of Birr 751,874.296. The interest calculated on
the outstanding balance will be paid together with the principal repayment.
Table 1:Source of Finance
Amount in ETB
Debt
Equity
Total
D/E Ratio
4,480,000.00
1,120,000.00
5,600,000.00
80%
20%
100%
1.1 Brief History of Agricultural Mechanization in Ethiopia
Though Ethiopia has a long history of agricultural practices, the development of agricultural
mechanization is still minimal. Farm power is mainly dependent on oxen-draft and human muscle
operating using traditional farm implements. Oxen-pulled maresha is the dominant farm implement
in cereal-based systems whereas hand-hoe is the main farm implement used in agroforestry systems.
Agricultural Development Units, attempts were made to develop and promote different agricultural
technologies (including farm implements) that fit to smallholder farmers. The level of tractor-based
agricultural machinery use is relatively better in wheat dominated cropping systems where
harvesting and threshing are done using combiners. This particular sector determines the growth of
all other sectors and consequently the whole national economy.
Unless supported by agricultural mechanization, achieving sustainable development goals is
generally challenging in sub-Saharan African countries, specifically so in Ethiopia. Hence it is the
country’s major focus under the second growth and transformation plan with attention given to
productivity and production increase which is crucial for the country’s effort to attain food security
and increase export earnings.
2
Along with other farm inputs, mechanization, such as fertilizers improved seed and pesticides can
significantly improve agricultural productivity in Ethiopia. Farm mechanization can help to increase
labour and land productivity through performing the power intensive and ergonomically laborious
tasks. It can also mitigate the growing seasonal labour constraints that are experienced by farmers in
several parts of the country. It also helps compensate for the migration of rural youth who are
disappointed with the work involved in agriculture. Thus mechanization contrary to the restricted
view on labour disappointed stands to compliment human labour in improving agriculture
production in Ethiopia.
In general, Agricultural Mechanization deals with the use of any mechanical aid in agricultural
production. These mechanical aids could be simple hand tools, animal drawn implements or
sophisticated mechanically powered agricultural machines. The source of energy ranges from
humans, animals to engine or electrical power.It includes three main power sources like human,
animal and mechanical. The manufacture distribution, repair, maintenance, management and
utilization of agricultural tools, implements and machines is covered under this discipline with
regard as to how to supply mechanization inputs to the farmer in an efficient and effective manner.
For different purposes of farm activities, mechanization tools of equipment of various types are
required for crop production starting from farm land preparation to post harvest activities.
A tractor is vehicle designed to provide a high tractive effort at slow speeds in
order to describe the
distinctive farm vehicle. The farm tractor is used for pulling or pushing agricultural machinery or
trailers for ploughing, tilling, disking, harrowing, planting and similar tasks.
1.2 Key Success and Risk Factors
 Success Factors
o Availability of cultivated land in catchment area of borrowers
o Special support from government for the sector
o The Development Bank of Ethiopia has set agricultural mechanization as a priority area
for investment
o Good management system may affect the overall effectiveness of the project.
Risk Factors
Risk is the threat or probability that an action or event will adversely affect an organization ability to
achieve its objectives. The major risks of the sector are:
Sector Level Risk Factors
o
Rain-fed nature of Ethiopianagricultural production system
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1.3 Mitigating Plan for Risk Management
-
decrease dependence on rain fed agriculture by increasesing the irrigation agriculture.
II. Market Study
In Ethiopia, agriculture is the backbone of the economy, accounts for almost half of gross domestic
product (GDP), 83.9% of export, and 80% of total employment. It do supports other sectors through
backward and forward linkage. In our country, it is dominated by small holder and largely
subsistence farming with low productivity. Hence, to improve the productivity of the sectors,
mechanization along with other farm inputs such as fertilizers, improved seeds and pesticides should
be applied. Farm mechanization can help to increase labor and land productivity through performing
the power intensive economically laborious tasks.
2.1 Demand of Mechanization service
As per the data collection from agricultural and natural resource management office there are about
20,393 ha and 615 ha cultivated annually using both rain feed and irregation respectively using
mechanization technology implimentations.
2.2 Supply of Mechanization service
As per the data from already mentioned catchament area of Agricultural and Natural Resource
Management Office, there are eleven tractors are found and out of which only three tractors were
ingaged in mechanization (rent) service within the catchment area, and the available tractors in the
area is not enough for the demand . This shows that the available tractors in the area is not sufficient
from the total potencial land to be cultivated using mechanization .
2.3 Demand Supply Gap
According to the data depicted on the above captioned headlines the project has sufficient demand
for the service that the project is expected of; almost all of the farmers in the catchment area are
expected to mechanize their agricultural practices using the machineries by which the bank is going
to supply using lease financing modality. In the other hand around South West Shoa zone and Kersa
Malima woredas mechanizetion technology application is not in significant level, this can be good
opportunity for having vast market share coverage of the project. Therefore, theoretically the
demand of this project ought weights the existing supply of the service in the area.
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2.4 Market Arrangement and Channel
The project is expected to provide ploughing service to the catchment area for 20 working days of
ploughing by which about 2400 hectors of land per year is expected to be ploughed .
This service is expected to be delivered not only to the individual farmers but also cooperatives with
in and around the catchment of the project.
Lesse
Farmers Assossation
Farmers/Consumers
2.5 Price of Analysis
The price of the service is expected to be fair and affordable to the clients; as per the collected data
form Agriculture and Natural Resource Management Office, the current price to charge average
price of Birr 2,800.00 for ploughing one hectar of land.
2.6 SWOT Analysis
Table 2: SWOT Analysis
Strength
- General manager and the owner of the
Weakness
- It creats a few job opportunity.
project has life long experience.
- Enough capital to run the project.
Opportunity
- Increase in mechanized farmer users in
the area
- Project establishment area near by the
user.
- Strong support and initiation from the
gov’t.
Threat
- Compitition in sectors
- Repair and maintenance service may not exist easily
- Machinery users have only small area of land
- The most users are highly depending on rain.
5
Based on the SWOT analysis the credit team has to made regular follow up with providing advisory
and technical supports to enhance the strengths, alleviate weaknesses, utilize opportunities and
minimize threats to the project’s success.
III.
Technical Study
3.1 Project Location
Sileshi UrgessaAgricultural Mechanization will engaged in agricultural sector in Oromia Regional
State specifically, Ilu and Becho woredas. The total cultivated land of the woredas is 35,581 hectar
out of which 20,393 hectar of cultivated land is ready for mechanized agriculture.
3.2 Product Description
Depending on various factors, there can be wide variation in maturity & harvesting periods of time
for some of agricultural projects. Among these, the climatic factors which include rainfall and water,
light, temperature, relative humidity, air , water, topography and soil. Besides these, variety of crops
being produced on the area is cereal crops (i.e. Teff, Maize, Wheat, Barley, Pea , Chick bean and
Bean), vegetables (i.e. onion,tomato, potato and others) are the major ones.
3.2.1 Agricultural Farm Technology and Process
Agricultural Machinery technology devices used to till soil and to plant, cultivate, and harvest crops.
Since ancient times, when cultures first began cultivating plants, people have used tools to help them
grow and harvest crops. They used pointed tools to dig and keep soil loosened, and sharp, knifelike
objects to harvest ripened crops. Modifications of these early implements led to the development of
small hand tools that are still used in small-scale gardening, such as the spade, hoe, rake, trowel, and
scythe, and larger implements, such as plows and larger rakes that are drawn by humans, animals, or
simple machines.
Agricultural implements are equipments used in a farm operation to help with farming having no
driven moving parts. The agricultural implements include ploughs, harrows, threshers, axes, chaff
cutter machine, cultivators, seed drills, etc. These implements are used for agricultural work to
improve the efficiency and reduce the labour. Large varieties of agricultural implements are also
used as attachments to tractors.
6
The operations of farming for which implements are used are diverse. For crop production they
include handling of residues from previous crops; primary and secondary tillage of the soil, fertilizer
distribution and application, seeding, planting, and transplanting, cultivation, pest control,
harvesting,
transportation, storage, pre-marketing processing, drainage, irrigation and erosion
control, and water conservation.
3.3 Types of Agricultural Machineries
3.3.1 Machinery Used for Land Development
Land development entails those activities which come before any other tillage systems; Farm land
preparation for any crop production is undertaken hiring professional consultants and contractors
authorized for such undertakings. As the required farm land development requires, the contractor to
be hired shall be furnished with heavy duty bulldozers, excavators, loaders, and transporting tipping
trucks.
3.3.2 Machineries Used for Land Preparation
Tractor is a traction machine that provides mechanical, hydraulic, and/or electrical power to
implements to perform a wide range of crop production and handling operations. Tractors are most
often used to perform drawbar work (pulling equipment through the field) and PTO (power take-off)
(power to rotate equipment components) work. Tractors can be equipped with rubber tires, rubber
belts, or steel tracks. A modern farm tractor is almost always equipped with a diesel engine and
tractor size is measured by the amount of power that the tractor can produce at the PTO.
Plow is an implement used to perform primary tillage. A number of types of plows are in common
use including the mouldboard plow, the chisel plow, and the disk plow.

The mouldboard plow has a large frame that is equipped with a series of "bottoms," each of
which consists of a steel coulter to slice through residue followed closely by a steel share that
cuts the soil and an attached mouldboard that is used to raise and turn over the cut "slice" of
soil.

Disk plows work in a similar manner to laterally displace and invert soil through the use of
concave steel disk blades.

Chisel plows use curved shanks to penetrate and "stir" the soil without inverting a soil layer.
Chisel plows cause less residue disturbance than mouldboard plows and are often used in
conservation tillage systems.
7

Disk Harrows (or Disk) - are implements that uses steel blades to slice through crop
residues and soil. Disk blades are mounted in groups or gangs that rotate as they move
forward through the soil. Front gangs move soil toward the outside of the disk while rear
gangs move soil back toward the canter of the disk. A disk can be used for primary or
secondary tillage.

Field Cultivator -an implement used to perform secondary tillage operations such as
seedbed preparation and weed eradication. Field cultivators are equipped with steel shanks
that are typically spring mounted to permit the shank to move within the soil and shatter
clods. Field cultivators are constructed similarly to chisel plows, but are more lightly built.
Large chisel plows can exceed 50 feet in width in the field.
3.4 Project Machinery and implement
The machinery and implement requirement of the envisaged project is summarized in the following
table below which is ETB 5,600,000.00.
Table -3: List of machineries/implements and the Estimated Cost
Sr.
No.
1
2
Description
Tractor
Disc Plough
Unit
Pcs
Pcs
Qty.
2
4
Unit Cost
2,200,000.00
300,000.00
Total
Total Cost (ETB)
Total
4,400,000.00
1,200,000.00
5,600,000.00
3.5 Business Run Program
The project’s implementation activities include lease processing, machinery procurement, Employee
recruitment and Test the machinery. It is expected that these activities will be executed within 1
year.
8
Table 4: Business Run Program Schedule
IV.
Organaization & Management
4.1 Organizational Structure
The planned organizational structure of the project presented here under:
General Manager
Secretar
yyy
Tractor Operator
Accountant & Cashier
ry
9
MAR
FEB
JAN
DEC
NOV
OCT
SEP
AUG
JULY
JUN
MAY
Description
Bank Loan
Process
Resource
mobilization
Procurement of
Machinery &
equipments
Installation of
Machinery&
Equipment
Procurement
local raw
material
Commencement
of Operation and
test Run
APR
2022
4.2 Management
In any farming practices the qualification and experiences of the management is very indispensable.
The management has to be educated and experienced in terms of its ability to work with selected
machines. The management is also expected to properly identify the opportunities and the ways to
exploit them; too well forecast risks and know threats and thereby to design ways to diversify the
risks; and also the capacity of the management in changing the threats to opportunities is also very
important.
The proposed farm project will be led by the adminstrators and recruited experienced professionals
as per the following.
Table-5: Minimum Man Power Requirement and Respective Salary
Description
Number
Monthly Salary
/person in ETB
Annual Salary
General Manager
1
9,000.00
108,000
Accountant
1
4,500.00
54,000
Secretary
1
2,000
Tractor Operators
2
4,000.00
Assistant Tractor
Operators
2
2,000.00
Cashier
1
3000.00
36,000
Guard
1
1500.00
18,000
24,000
96,000
48,000
Total
9
26,000
384,000
4.3 Availability of Man Power
Agricultural farming is labor intensive. Man power is an essential factor in the successful production
of agricultural farming. Especially in commercial farms, a large scale farm requires proportional
number of skilled and unskilled manpower. The intended project requires 9 permanent workers to
carry out the farm activities smoothly with machines.
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V. FINANCIAL ANALYSIS
5.1 Fund Allocation
Initial investment cost which referred as capital expenditure is equivalent to the total financial outlay
of the Business which will be required in order to establish the business before enter into operational
stage. The capital expenditure are constitute of fixed investment costs and initial working capitals
including costs that would be incurred before operation. Hence the total investment of the business is
calculated based on the owner’s objective, plan and the requirement of investment items for the
intended purpose which is estimated and found to be birr 5,600,000.
Table 6: Estimated Initial and Fixed Investment Cost of the Business
Ser.
No.
Description
1 Tractors and plough disk
Sub-total
3 Working Capital
4 pre-operating cost
Sub-total
Total
Percentage Debit Equity Ratio
Investment
Total
Percentage
Cost (In
Investment
Proportion (%)
Birr)
Cost (In Birr)
5,600,000
5,600,000
5,600,000
5,600,000
1,120,000.00 1,120,000.00
560,000.00
80,000
80,000
33,000 1,200,000.00
1,200,000.00
6,800,000.00 6,800,000.00
21.43%
78.57% 443,000
- 443,000
80%
20%
100%
5.2 Source of Finance
The total planned investment cost of the project is estimated to be 6,800,000.00 birr of which, Birr
1,200,000.00, 21.43%) is equity contribution and the remaining Birr (78.57%) is finacing from the
bank..
5.3 Expected Financial Results
As seen the excel part of the appraisal the team try to show all financial analysis like Profit/loss or
income statement forecast, cash flow and balance sheet projection, financial rate of return and
sensitivity of the project for potential variables.
5.3.1 Profit/loss forecast
Profit/loss forecast presents the results of project’s operations during a period of time. It shows
income earning from the project and expenses incurred in attaining the income. The projected
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profit/loss statement of the project reveals that the project will earn net profit of Birr 1,010,720.00
during its first year of its operation and earn net profit of Birr 1,424,750.00 at the 10th end year of
projection. This indicates that the project could run profitable business venture and can maintain
objective of its establishment at competitive price.
5.3.2 Cash Flow Forecast
Cash flow projection provides a look at the movement of cash in and out of the project. It is
important in determining whether or not a project has enough cash to pay its bills, handle expenses
and acquire assets. Thus, it is important to give due attention to identify whether the total inflows of
the project have the capacity to cover all cash outflows during its operational period. Unless, the
project will faces liquidity crisis and fail before achieving its objective of establishment.
Based on this fact, the forecasted cumulative cash balance shows a balance of Birr 467,316.00 in the
first year and will grow up to Birr 9,156,476.00 at the end of project period, demonstrating that the
project will not face liquidity constraint to finance its operational costs as well as debt obligation.
5.3.3 Balance Sheet Projection
Balance Sheet Projection is used to provide insight into assets and debts of the project at a particular
point in time. Total assets of the project is expected to rise from Birr 7,721,956.00 during the first
operational year to Birr 9,514,748.00 at the end project year.
5.3.4 Financial Rate of Return
Table 7: Estimated Initial and Fixed Investment Cost of the Business
Scenario
Internal Rate of Return
Before Tax
10,782,710.00
64%
After Tax
6,904,782.00
46%
VI.
6.1.
Net Present Value (NPV)
SOCIO ECONOMIC BENEFIT AND ENVIRONMENTAL IMPACT
Socio Economic Benefit
Agriculture in Ethiopia is the foundation of the country's economy, accounting for half of gross
domestic product (GDP), 83.9% of exports, and 80% of total employment. This particular sector
12
determines the growth of all other sectors and consequently, the whole national economy.Based on
this fact Agricultural Mechanization Service has enormous contributions:
Source of Government Income: - from this sector government get income in the form of
profit tax. The government gets income in the form of employee tax from permanent and
temporary employee.
Employment Opportunities Creation:-The importance of crop production practice in
creating employment is not only limited to the farming practice but also to agro processing
industries too. The expansion of such farms increases the establishment of related factories,
thereby huge employment opportunity ensured along the value chain.
Linkage Effects:- The expansion of crop production in the country with advanced
technology would have forward and backward linkages. The forward linkages would be the
expansion of factories and packaging material industries while the backward linkages are the
expansion of input producing and supplying firms in the country.
Technology and Knowledge Transfer:- The development of this subsector transfer new
technology and knowledge by introducing modern production techniques that optimize
production and productivity.
GDP Contribution:- crop production contributes to the GDP of the country, increases the
income of the workers employed in and the owner too.
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