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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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
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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.
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