1st Draft
PRE-FESIBILITY STUDY ON FATTENING OF BUFFALO/CATTLE CALVES
Animal Nutrition Program (ASI) NARC
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
Contents
1-
DISCLAIMER..................................................................................................................................... 1
2-
PURPOSE OF DOCUMENT ............................................................................................................... 1
3-
Introduction to scheme................................................................................................................... 1
4-
EXECUTIVE SUMMARY .................................................................................................................... 1
5-
BRIEF DESCRIPTION OF PROJECT AND PRODUCT ........................................................................... 2
6-
CRITICAL FACTORS .......................................................................................................................... 2
7-
INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES.......................................... 3
8-
GEOGRAPHICAL POTENTIAL FOR INVESTMENT .............................................................................. 3
9-
POTENTIAL TARGET MARKETS ........................................................................................................ 3
10-
PRODUCTION PROCESS FLOW .................................................................................................... 3
11-
PROJECT COST AND BENEFIT SUMMARY .................................................................................... 3
12-
PROJECT ECONOMICS ................................................................................................................. 3
10.1
Project Cost ............................................................................................................................. 4
10.2
Space Requirement ................................................................................................................. 4
10.4 Machinery and Equipment.......................................................................................................... 4
10.5 Furniture and Fixture .................................................................................................................. 5
10.6 Operational and Maintenance cost ............................................................................................ 5
10.7 Human Resource Requirement ................................................................................................... 5
10.8
Project Financing ..................................................................................................................... 5
10.9
Revenue Generation ............................................................................................................... 6
13-
KEY ASSUMPTION ....................................................................................................................... 6
14-
ANNEXURE .................................................................................................................................. 7
1- DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on the subject. Although, the material included in this document is
based on data / information generated from experiments and field testing by a team of
relevant scientists; however, it is based upon certain assumptions which may differ from
case to case. The contained information may vary due to any change in any of the
concerned factors, and the actual results may differ accordingly from the presented
information. The PARC and its employees do not assume any liability for any financial or
other loss resulting from this memorandum in consequence of undertaking this activity. The
prospective user of this memorandum is encouraged to contact qualified
consultant/technical expert, especially designated focal person(s) of this enterprise for
reaching to an informed decision.
2- PURPOSE OF DOCUMENT
The purpose of this document is to facilitate potential investors in by providing them with a
general understanding of the business, with the intention of supporting potential investors
in crucial investment decisions. The project pre-feasibility may form the basis of an
important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, production, finance, and
business management. The need to come up with pre-feasibility reports for undocumented
or minimally documented sectors attains greater imminence as the research that precedes
such reports reveal certain thumb rules; best practices developed by existing enterprises by
trial and error, certain industrial norms and well established research findings that become
a guiding source regarding various aspects of business set-up and it’s successful
management. Apart from carefully studying the whole document, one must consider critical
aspects provided later on, which form the basis of investment decisions.
3- Introduction to scheme
Prime Minister’s Youth Business Loan Program, for young entrepreneurs, with an allocated
budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at
8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through
designated financial institutions, initially through National Bank of Pakistan (NBP) and First
Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8
years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME
beneficiaries across the Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa,
Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal
Areas (FATA).
4- EXECUTIVE SUMMARY
Beef from young male calves (12-18 months old) of buffalo and cattle is one of major source
of proteins of high biological values and foreign exchange through production of milk, meat
and hides. However quality of beef due to their stunted growth rate and poor carcass yield
is not satisfactory. Farmers prefer to feed to female calves for replacement of herd. Male
calves become neglected due to malnutrition, emaciation and diseases leading to low
weight at marketing age and less carcass yield when slaughter. Growth rate and quality of
beef and economic return from calves can be improved by fattening. Domestic and
international literature has revealed a growth rate of 700 to 900 g/day when calves are
fattened with a variety of protein supplements along with appropriate health cover and
management.
Such fattening trials can be successfully carried in rural as well as urban areas of Sindh,
Punjab, Balochistan, Khyber Pakhtunkhwa, Gilgit-Balitistan, AJ&K and FATA. Such a project
can be easily completed by conducting series of trials, each on 25 calves (12-18 months old)
for a period of 120 days. Fattened calves can be sold as live or as carcass or cut pieces in any
part of the country. A loan of Rs 1.059 offers a good opportunity for an economic
investment not only for the production of quality beef but also jobs for our talented youth.
Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR), and
payback period are Rs.3,308,171, 29% and, 4.63 years, respectively.
5- BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Calves of respective breeds of buffalo and cattle in rural areas on all over the
country can be subjected to such fattening trials under semi-intensive system. However
protein supplements (of different degradability) for fattening and green fodders harvested
at bloom stage can vary according to climatic conditions and cropping pattern.
• Location: The business can be initiated in rural and urban areas having access to
marketing throughout the country.
• Product: At the moment most of beef is coming from slaughtering of spent animals which
is and low quality compared with that from young calves. Fattening of young calves with
quality supplements will yield of high grade. Production and use of quality will not only
improve our own health but also socioeconomic conditions with foreign exchange earned
through export of surplus.
• Target Market: In addition to major cities, such as Quetta, Karachi, Lahore and Islamabad,
there is an enormous export potential for Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to two
individuals. Financial analysis shows the profitability of proposed business within first year
of its operation.
6- CRITICAL FACTORS
The commercial viability of the proposed project depends on the following factors:
• Selection of calves of local breeds of buffalo and cattle, balanced feeding, proper housing,
management, appropriate health cover, well defined marketing and dedicated supervisory
staff will play very important role in exploitation of genetic potential local breed and will
ensure the success of the project.
• Farm may be positioned near to market so that supply of inputs and disposal of final
products could be managed easily.
• It should have enough elevation, so it can be drained easily during the off season.
• Calves should preferably represent local breed and disease free with a desirable body
conditions.
• Farm is required to maintain the complete record of inputs and out puts (Calves, fodder
production or purchase, Feed intake, body weight, morbidity, mortality, sale of animals
and manure) and infrastructure like buildings, equipments and fuel for successful
marketing and traceability.
• Farm should have strong market linkages for effective disposal of produce.
7- INSTALLED AND OPERATIONAL CAPACITY FOR FATTENING of CALVES
This pre-feasibility suggests that quality beef can be produced by using local genetic
materials feed resources under scientific management in a well defined marketing manner.
8- GEOGRAPHICAL POTENTIAL FOR INVESTMENT
Semi-arid and irrigated areas are more suitable for this investment as regard availability of
inputs and marketing of final products.
9- POTENTIAL TARGET MARKETS
The marketing of beef follows the traditional distribution channel, through middlemen or
wholesalers at farm who identifies potential buyers and negotiate price, or directly to
retailer in urban markets. The time spent in transportation, from farm to the retail shop,
varies from area to area. Over the years, collection and transportation of fish has improved
with the use of loader vehicles. However, greater the distance between farm and consumer,
more complicated will be the marketing or distribution system, due to the perishable nature
of the product. The key factors in marketing are availability of current market information,
quality of beef produced and supply & demand which will determine the selling price.
10- PRODUCTION PROCESS FLOW
Although both species are polyestrous but cattle will be more useful in ensuring flow of
production process due to higher fertility rate. However intellectual planning will play an
important role in arrangement, use of inputs and their disposal.
11- PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of calf
fattening under the Prime Minister’s Small Business Loan Scheme. Various cost and revenue
related assumptions, along with results of the analysis, are outlined in this section.
12- PROJECT ECONOMICS
All figures in the financial model have been calculated 30 animals. The following table shows
internal rates of return and payback period.
Table 1. Project Economics
Description
Net Present Value (NPV)
Internal Rate of Return (IRR)
Payback Period (years)
Details
3,380,171
29%
Factors that influence the profitability of calve fattening are farm management, quality of
inputs, environmental factors and market situation.
10.1 Project Cost
Following requirements have been identified for operations of the proposed business.
Table 2. Total Project Cost
Capital Investment
Capital Cost (one time investment)
Initial operational cost
Total
10.2 Space Requirement
Table 3. Space requirement and its cost
Space Requirement (Sq. ft.)
Cost Rs./
Unit
Veterinary dispensary and
500
office
Feed store
600
Shed
400
Loading
area
including
105
manager and water tank
Miscellaneous facilities (cattle
Crush)
Total:
Amount (rupees)
736,636
1,077,847
1,814,483
Quantity
(Nos.)
1
Area
(Sq. ft.)
100
Total Cost
(Rs.)
75,000
1
3 sheds
1 loading
area
1 cattle
Crush
70
625
1000
42,000
250,000
105,000
60,000
532,000
10.4 Machinery and Equipment
Table 4. List of Machinery & Equipments and its cost
Description
Quantity
Unit Price
(Nos.)
(Rs.)
Weighing scale
01
25,000
Total
(Rs.)
25,000
Chopper and other equipments
01
30000
30,000
Veterinary Kit
01
20,000
20,000
-
15000
15000
Misc Machinery
Total:
90,000
10.5 Furniture and Fixture
Following table provides list of Furniture and Fixture required for fattening calves.
Table 5. List of Furniture & Fixture and its cost
Description
Furniture and Fixture
Quantity
(Nos)
Lump sump
Unit Price
50000
Total:
Total
(Rs.)
50,000
50,000
10.6 Operational and Maintenance cost
Following table provides list of Consumable Requirement for fattening calves.
Table 6. Operational & Maintenance cost
Description
Cost of purchase of animals (125kg body weight)
Cost of feeding of animals @ Rs. 116/day
(including fodder/silage and concentrate)
Cost of Medicines
Electricity
Diesel Charges
Total:
* Local livestock market.
Quantity
(Nos.)
25
-
Unit Price
(Rs.)
23750
-
Total
(Rs.)
593,750
348,000
-
-
1,250
7,500
6,000
956,500
10.7 Human Resource Requirement
The table below provides details of human resource required to manage basic calves
fattening. The staff salaries are estimated according to the market trends. However, these
requirements and pay scales may vary area to area.
Table 7. Human Resource Requirement its cost
Description
Laborers
No. of Employees
2
Salary/person/ month
10000
Total salary per year
240,000
10.8 Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 8. Project financing
Description
Total Equity (10%)
Bank loan
Mark up to borrower (per annum)
Tenure of Loan (Years)
Grace Period (years)
Details
Rs. 180500
Rs. 1624500
8%
8
1
10.9 Revenue Generation
Final product of the trial is 25 fattened calves ready for sale in market that will generate
revenue. Trial will be repeated at least thrice a year with sufficient generation of funds.
Table 9. Revenue of the Project
Product Unit Survival
Average
@100% Weight of calf
Fattened 25
215 kg
calves
First Time
Production (Kg)
Farm
yard
manure
Sales Price
(Rs./Unit)
215/kg
body
weight
First Time
Revenue (Rs)
1,,155,625
16500
Total Sales Revenue:
KEY ASSUMPTION
Particulars
Sales Price Growth Rate
Increase in cost of raw material
Increase in utilities
Debt/Equity Ratio
Plant Building
Machinery and equipment
Office furniture & fixture
Loan Period
Grace Period
Loan installments
Financial charges (interest rate)
1,172,125
13-
Assumption
5% per year
10% per year
10% per year
90:10
5%
10%
10%
8 years
1 year
Monthly
8%
14- ANNEXURE
Statement Summaries
SMEDA
Income Statement
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Rs. in actuals
Year 10
3,456,283
4,127,946
4,811,474
5,172,334
5,560,259
5,977,279
6,425,574
6,907,493
7,425,555
7,982,471
1,043,559
1,774,125
240,000
14,740
35,376
3,212,800
243,483
1,217,527
2,069,813
264,000
17,220
43,296
3,722,106
405,841
1,386,252
2,356,594
290,400
19,625
51,691
4,220,324
591,150
1,455,583
2,474,423
319,440
20,606
56,860
4,448,463
723,871
1,528,366
2,598,145
351,384
21,636
62,546
4,689,705
870,554
1,604,776
2,728,052
386,522
22,718
68,801
4,944,878
1,032,400
1,684,992
2,864,454
425,175
23,854
75,681
5,214,866
1,210,709
1,769,205
3,007,677
467,692
25,046
83,249
5,500,616
1,406,877
1,857,706
3,158,061
514,461
26,299
91,574
5,803,234
1,622,320
1,950,614
3,315,964
565,907
27,614
100,732
6,123,720
1,858,751
General administration & selling expenses
Travelling & Comm. expense (phone, fax, etc.)
Depreciation expense
Amortization expense
Subtotal
Operating Income
6,000
67,200
12,927
98,127
145,355
6,300
67,200
12,927
99,027
306,814
6,615
67,200
12,927
99,972
491,178
6,946
67,200
12,927
100,964
622,907
7,293
67,200
12,927
102,006
768,548
7,658
67,200
90,173
942,227
8,041
67,200
91,322
1,119,387
8,443
67,200
92,528
1,314,349
8,865
67,200
93,794
1,528,526
9,308
67,200
95,124
1,763,627
Other income
Gain / (loss) on sale of assets
Earnings Before Interest & Taxes
145,355
306,814
491,178
622,907
768,548
942,227
1,119,387
1,314,349
1,528,526
1,763,627
Interest expense
Earnings Before Tax
135,541
9,814
124,089
182,725
109,038
382,140
92,737
530,170
75,083
693,464
55,964
886,263
35,258
1,084,129
12,834
1,301,515
1,528,526
1,763,627
9,814
182,725
382,140
13,017
517,153
29,346
664,118
55,439
830,824
85,119
999,010
117,727
1,183,788
153,205
1,375,321
200,225
1,563,402
Revenue
Cost of Goods Sold
Feed & Vaccination Cost
Cost of Calves
Direct Labor
Repair & Maintenance
Utilities
Total Cost of Sales
Gross Profit
Tax
NET PROFIT/(LOSS) AFTER TAX
Statement Summaries
PARC
Balance Sheet
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Rs. in actuals
Year 10
133,705
4,913
939,228
1,077,847
175,125
6,027
1,150,569
1,331,720
59,215
7,212
1,375,496
1,441,923
207,994
7,951
1,516,491
1,732,436
463,490
8,766
1,671,933
2,144,190
849,661
9,665
1,843,303
2,702,628
1,380,063
10,655
2,032,231
3,422,950
2,069,391
11,748
2,240,518
4,321,657
2,933,513
12,952
2,470,191
5,416,656
4,295,034
14,279
2,723,397
7,032,711
8,761,392
8,761,392
532,000
90,000
50,000
672,000
478,800
81,000
45,000
604,800
425,600
72,000
40,000
537,600
372,400
63,000
35,000
470,400
319,200
54,000
30,000
403,200
266,000
45,000
25,000
336,000
212,800
36,000
20,000
268,800
159,600
27,000
15,000
201,600
106,400
18,000
10,000
134,400
53,200
9,000
5,000
67,200
64,636
64,636
1,814,482
51,708
51,708
1,988,229
38,781
38,781
2,018,304
25,854
25,854
2,228,690
12,927
12,927
2,560,317
3,038,628
3,691,750
4,523,257
5,551,056
7,099,911
8,761,392
163,932
163,932
192,627
192,627
217,270
217,270
231,424
231,424
246,621
246,621
262,949
262,949
280,503
280,503
299,387
299,387
319,715
319,715
217,570
217,570
1,633,034
1,633,034
1,633,034
1,633,034
1,451,689
1,451,689
1,255,293
1,255,293
1,042,596
1,055,613
812,245
854,609
562,776
660,578
292,600
475,522
300,649
453,854
654,079
Shareholders' equity
Paid-up capital
181,448
Retained earnings
Total Equity
181,448
TOTAL CAPITAL AND LIABILITIES 1,814,482
181,448
9,814
191,263
1,988,229
181,448
192,539
373,987
2,018,304
181,448
574,679
756,127
2,228,690
181,448
1,091,832
1,273,280
2,560,317
181,448
1,755,950
1,937,398
3,038,628
181,448
2,586,774
2,768,222
3,691,750
181,448
3,585,784
3,767,232
4,523,257
181,448
4,769,572
4,951,020
5,551,056
181,448
6,144,893
6,326,341
7,099,911
181,448
7,708,295
7,889,743
8,761,392
Assets
Current assets
Cash & Bank
Equipment spare part inventory
Raw material inventory
Total Current Assets
Fixed assets
Land
Building/Infrastructure
Machinery & equipment
Furniture & fixtures
Total Fixed Assets
Intangible assets
Pre-operation costs
Total Intangible Assets
TOTAL ASSETS
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable
Total Current Liabilities
Other liabilities
Long term debt
Total Long Term Liabilities
-
Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
-
Statement Summaries
PARC
Cash Flow Statement
Operating activities
Net profit
Add: depreciation expense
amortization expense
Deferred income tax
Accounts receivable
Finished good inventory
Equipment inventory
Raw material inventory
Accounts payable
Other liabilities
Cash provided by operations
Year 0
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
(4,913)
(939,228)
(944,141)
9,814
67,200
12,927
(1,114)
(211,341)
163,932
41,419
182,725
67,200
12,927
(1,185)
(224,927)
28,695
65,435
382,140
67,200
12,927
(739)
(140,995)
24,643
345,175
517,153
67,200
12,927
13,017
(815)
(155,442)
14,153
468,194
664,118
67,200
12,927
29,346
(899)
(171,369)
15,197
616,521
830,824
67,200
55,439
(991)
(188,928)
16,328
779,872
999,010
67,200
85,119
(1,092)
(208,287)
17,553
959,503
1,183,788
67,200
117,727
(1,204)
(229,673)
18,884
1,156,722
1,375,321
67,200
153,205
(1,328)
(253,206)
20,329
1,361,521
(181,345)
(181,345)
(196,396)
(196,396)
(212,697)
(212,697)
(230,351)
(230,351)
(249,470)
(249,470)
(270,176)
(270,176)
(292,600)
(292,600)
Financing activities
Change in long term debt
1,633,034
Issuance of shares
181,448
Purchase of (treasury) shares
Cash provided by / (used for) financing1,814,482
activities
-
Investing activities
Capital expenditure
(736,636)
Acquisitions
Cash (used for) / provided by investing activities
(736,636)
-
-
-
-
-
-
-
-
Rs. in actuals
Year 10
1,563,402
67,200
200,225
14,279
2,723,397
(102,146)
4,466,357
-
-
-
-
NET CASH
133,705
41,419
(115,910)
148,779
255,497
386,170
530,403
689,328
864,122
1,361,521
4,466,357
Cash balance brought forward
Cash available for appropriation
Dividend
Cash carried forward
133,705
133,705
133,705
175,125
175,125
175,125
59,215
59,215
59,215
207,994
207,994
207,994
463,490
463,490
463,490
849,661
849,661
849,661
1,380,063
1,380,063
1,380,063
2,069,391
2,069,391
2,069,391
2,933,513
2,933,513
2,933,513
4,295,034
4,295,034
4,295,034
8,761,392
8,761,392