Feasibility : Farm Expansion ALHERI FARM AND AGRIC COMPANY LIMITED FEASIBILITY: FARM PROJECT EXPANSION 1.0 INTRODUCTION One of the main thrusts of the present administration is to develop agriculture as an additional income generation for the nation, and to ensure self-sustenance in food production. It is in this light that the promoters of Alheri Farms decided to float the company in order to be identified with the laudable programs of the Federal Government in agricultural development. In order to encourage existing and prospecting farmers, the Federal Government, through the Commercial banks, decided to introduce soft agricultural loans to support the farmers in procuring essential tools and agricultural equipment to facilitate increased output. Government intention is to enable farmers access loans at a lower rate and longer tenure of repayment, to give room for the gestation period of the crops. 1.1 THE COMPANY The company, Alheri Farm and Agric Company Limited, though recently incorporated, has been in existence as Alheri Farm and Agric Company. The company has been operating as an integrated farm, with the main focus on arable farming, animal fattening, and fishery. The company was later incorporated as a limited liability company on the 26th June, 2006, [RC 658120], to enable it operate on a larger scale and expand its market potentials. 1.2 OBJECTIVES OF THE REPORT The main objective of the report is to determine the viability of the proposed expansion plan, taking into cognisance the ability to pay back the financing loan and the interest thereon. Other objectives include: Determine the payback period of the project, and the extent of its contribution to the entire profitability of the company. Recommend appropriate cashflow that will sustain growth and ensure timely payment of loan due and interest thereon. Recommend the best Organisational Chart that will be best suited for the proposed expansion. Analyse the problems faced by Nigerian farmers and proffer solutions to solving them. 1 Feasibility : Farm Expansion Compile the technical and economic data for the purpose of determining the overall project income, cost and profitability. 1.3 PURPOSE OF THE LOAN The purpose of this feasibility is to enable the company secure an Agricultural Loan facility of N25[Twenty-five] Million, under the Federal Government assisted Agricultural Fund, for the purpose of financing the expansion program proposed by the company. The company intend to use the facility for the following purpose: N 1. Construct a Model Cattle Feeding Pen. 2,000,000 2. Build the Main Warehouse. 2,500,000 3. Purchase Combine Harvester. 9,500,000 4. Rehabilitate one of the existing Boreholes. 500,000 5. Purchase 2 Nos Delivery Vans 3,000,000 6. Working Capital: Purchase of Cattle, Seed, etc. 5,000,000 7. Contingency: 10% 2,500,000 30,000,000 1.4 LOCATION OF THE FARM The farm is located at Kabo Bawa Village, Sabon Birni District, Igabi Local Government, Kaduna State. It is situated along Rigachikun and Kaduna Airport road. The farm include a large expand of land consisting of arable farmland, livestock farm, and a large Dam used for fishery. The location of this farm is close to Kaduna metropolis, which is considered as the entry point to the North. The ever-increasing population of Kaduna, and its closeness to the Federal Capital Territory, gives the company an everincreasing opportunity to market its agricultural products. The existence of standard hotels, schools, and food industries creates a good market for livestock products. 1.5 STUDY METHODOLOGY We visited the existing Farmland, Dam and the Cattle Fattening Pen, to enable us have an overview of the operations of the company. From our discussions with the management staff of the company, and information gathered from the visits, we were able to arrive at the size of investments necessary for the proposed expansion. 2 Feasibility : Farm Expansion 2.0 AN OVERVIEW OF THE ECONOMY Nigeria, with an ever increasing population of over 120million people, is no doubt a ready market for food and cash crops. While it has a large expanse of land for agricultural production with its size of 925,000 sq. metres, the method adopted in farming is still far from being mechanised, thus producing far less than the consumption rate of the population. The major long-term policies of the Federal Government have been aimed at bringing an appreciable improvement in the living conditions of the populace. Also, government continues to explore increased participation by Nigerians in the ownership and management of productive enterprises, maintenance of economic and political stability to create a conducive environment for foreign investors. The Nigerian economic environment is changing at a rapid pace, due to stability in the policy instruments used in the regulation of the economy. These include interest rates, bank consolidation policy, narrowing the gap between the parallel market and the official exchange rates. The latest of this development is the recently introduced soft loans for farmers. This is to encourage farmers and boost agricultural development in all part of the economy. The Federal Government is also using the opportunity to boost the production of exportable commodities to enhance its foreign exchange earnings. Of recent, the Federal Government, in its efforts to improve the agricultural sector, designed several incentives to help farmers, included among which is the recently introduced ‘Loanable Agricultural Fund’ Alheri farms is applying for this loan to enable it fund its farm expansion project, in order to contribute its quota to the society, through cheap agricultural products. 3 Feasibility : Farm Expansion 3.0 COMMERCIAL Most of the agricultural production in the country has been targeted to meeting the local demand because of insufficient production by the existing farmers. This could be linked to the primitive and manual method of agricultural production. The following are the commercial viability of arable farming, fishery and livestock fattening: The insufficient production of arable crops, fish, meat, etc has compelled importation of these products to supplement the available ones. Fish is one of the sources of protein intake by Nigerians. This include both the low and high-income earners; because of the cheap price. Meat is also a source of protein and is widely consumed throughout the country. With the recent ban on the importation of livestock products, couple with the incentives given by the Federal Government to farmers to boost agricultural production, Alheri Farms will no doubt contribute to the achievement of these goals, and also contribute to the Gross Domestic product. The demand of Kaduna Township, Zaria City, and federal Capital City, is enough to consume whatever Alheri Farms may produce. The company intends to supply its livestock products and fishes to major hotels, schools with boarding facilities / hostels, Military Barracks, Air Force Base. Fishes and livestock products would also be sold to the neighbouring towns through refrigerated Vans. Our pricing policy will depend on the available market price, which according to our survey carries reasonable profit margin. Demand for Meat and Meat products in Nigeria Nutritionists have always been aware of the inadequacy of the nutritive quality of the Nigerian diet. The daily per capital animal protein consumption was only 10 grams. This is less than 50% of the intake recommended by the Food and Agricultural Organisation. 4 Feasibility : Farm Expansion Meat is considered a must in most of the Nigerian’s diet. This is due to its protein content, and nourishing taste. Meat is also used in the preparation of snacks, sausages and special meals. In view of the high demand for this product, Alheri Farms will have no problem in selling its mature livestock. 5 Feasibility : Farm Expansion 4.0 OWNERSHIP Alheri Farms is a indigenous company, wholly owned by Nigerians. The directors have been into farming and agro allied industries for many years under the name Alheri Farm and Agric Company, until recently when the company was incorporated as a limited liability company. The shareholders of the company and their respective shareholding are as follows: N 1. Alhaji Yaro Abdullahi 700,000 2. Hajia Aisha Adamu 100,000 3. Alhaji Abubakar 100,000 4. Alhaji Musa Ibrahim 100,000 1,000,000 The above shareholders constitute the directors of the company, and are well exposed and experienced in specialised farming in all areas covered by Alheri Farms. Their involvement in the proposed expansion will ring a tremendous growth to the company. MANAGEMENT STAFF The company has proposed to increase the number of management staff, to create room for adequate supervision of the proposed expansion. To handle the increase in operations therefore, the following new Organisational Structure has been proposed for the take off of the farm expansion. 1. Managing Director / Chief Executive Officer He is responsible for the formulation of strategic and functional policies, within which the activities and operational plans will be based. He heads the Executive Management Committee meetings. He summarises the Master budget for the Board’s approval. He directs the day to day activities of the company. 2. General Farm Manager He is the overall operations manager of the farm. 6 Feasibility : Farm Expansion He monitors and control the activities of the other divisional farm managers / supervisors. He sets up target for the divisional farm supervisors, based on the approved master budget. He reviews daily, weekly, and monthly production/farm reports, as submitted by the divisional farm managers. 2. Divisional Farm Managers / Supervisors Ensures judicious use of all resources allocated to the division. Renders daily, weekly, or monthlt returns to the Farm Manager as the case may be. Maintain all assets put under his jurisdiction, and ensure optimal use of them. 3. Accountant Keeps records of all the financial transactions of the company, including fixed assets, stock, debtors, creditors, etc. Prepares monthly management accounts and reports for management’s consideration. Keeps the income and expenditure records, and ensure good internal control in all areas of the company’s activities. Implement personnel and admin policies, and coordinates administrative and personnel matters. 4. Manager – Sales and Marketing Ensures that all harvested crops are sold and at reasonable prices. Creates awareness among individuals and corporate bodies, to boost patronage. Set sales target for Sales Representatives and monitor the performances of individual staff. 7 Feasibility : Farm Expansion 5.0 PROJECT COST AND FINANCING PLANS The investment cost comprising of both fixed and working capital has been conservatively estimated to take care of future cost variations. 5.1 LAND The company has already acquired a large farmland enough to accommodate the proposed expansion. 5.2 BUILDING The company at present has 2 (two) Warehouses, and 1(one) Administrative Office, and 2 (two) boreholes. It is proposing to build: a. One big Main Store to take care of the increase in arable crops and grains. b. A model Cattle Feeding Pen c. Renovation of one of the Boreholes. 5.3 DAM There is an existing Dam consisting of over 20,000 Fingerling type of Fishes. These will be mature for harvest within the next one year. 5.4 FARM MACHINERY AND EQUIPMENT Existing: 4 Functional Tractors 1 Tresher Other Farm Equipment and Tools Proposed Additions: 5.5 MOTOR VEHICLES Existing Motor Vehicles: Proposed Addition: 1 No. Combined Harvester 1 No. Nissan Jeep 1 No. Toyota Carina E 2 Nos. Delivery Vans 8 Feasibility : Farm Expansion 5.6 WORKING CAPITAL The proposed expansion of the farm will require additional working capital to purchase seeds, hire farm labourers, purchase cows for fattening, and pay other overheads. SUMMARY OF PROJECT COST 1. 2. 3. 4. 5. 6. 7. Construct a Model Cattle Feeding Pen. Build the Main Warehouse. Purchase Combine Harvester. Rehabilitate one of the existing Boreholes. Purchase 2 Nos Delivery Vans Working Capital: Purchase of Cattle, Seed, etc. Contingency: 10% N 2,000,000 2,500,000 9,500,000 500,000 3,000,000 5,000,000 2,500,000 25,000,000 9 Feasibility : Farm Expansion BASIC ASSUMPTIONS UNDERLYING FINANCIAL PROJECTIONS THE PREPARATION OF The following assumptions were made in the preparation of the accompanying projections: 1. Financial Year The financial year end is assumed as 31st December of every year. 2. Projection Period Our forecast is based on five years projection period. 3. Sales Projection In view of the proposed capital injection of N25 million, it is expected that productivity will increase that will effect a significant increase in sales figure. It is assumed that sales figure will increase by 40% over the previous year. It is also expected that the harvest of the Fish Dam will contribute greatly to the sales revenue in 2006/7 and subsequent years. 4. Purchases Projection Based on the proposed expansion of the Farm, there will be increase in the purchase of Fertilizer, Seeds, and Animal Feeds. 5. Loan Facility Alheri Farms is proposing to obtain N25,000,000 Fed. Governmentt assisted Agricultural Loan for the financing of its expansion project, and enhance the working capital. The company is proposing to contribute 20% of the Loan. The purpose of the loan is for the following: 1. 2. 3. 4. 5. 6. 7. Construct a Model Cattle Feeding Pen. Build the Main Warehouse. Purchase Combine Harvester. Rehabilitate one of the existing Boreholes. Purchase 2 Nos Delivery Vans Working Capital: Purchase of Cattle, Seed, etc. Contingency: 10% N 2,000,000 2,500,000 9,500,000 500,000 3,000,000 5,000,000 2,500,000 25,000,000 10 Feasibility : Farm Expansion 6. Bank Interest It is proposed that the interest on this loan will be 12%, to be shared as follows: FGN 4%, ALHERI FARMS 8%. Interest is calculated on a diminishing balance method. 7. COT Charges Bank Charges is assumed at N5 per mille, on withdrawals made within the period. 8. Loan Repayment It is assumed that the loan will be repaid within 2 years period, spread across 24 months. 9. Administrative Charges Administrative Charges is assumed to increase at the rate of 15% over the previous year’s figures. 10. Debtors and Creditors It is assumed that the company will allow one month credit for its customers, and enjoy one month credit from its suppliers. 11. Taxation Tax is assumed at 30% of Profit before tax 12. Cost of Sales In view of the nature of business, cost of farming is assumed at 45% of the sales value. 11