236. PROFILE ON PRODUCTION OF MAIZE
(CORN) STARCH
236-2
TABLE OF CONTENTS
PAGE
I.
SUMMARY
236-3
II.
PRODUCT DESCRIPTION & APPLICATION
236-3
III.
MARKET STUDY AND PLANT CAPACITY
236-4
A. MARKET STUDY
236-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME
236-6
RAW MATERIALS AND INPUTS
236-6
A. RAW & AUXILIARY MATERIALS
236-6
B. UTILITIES
236-7
TECHNOLOGY & ENGINEERING
236-8
A. TECHNOLOGY
236-8
B. ENGINEERING
236-9
MANPOWER & TRAINING REQUIREMENT
236-10
A. MANPOWER REQUIREMENT
236-10
B. TRAINING REQUIREMENT
236-11
FINANCIAL ANALYSIS
236-12
A. TOTAL INITIAL INVESTMENT COST
236-12
B. PRODUCTION COST
236-14
C. FINANCIAL EVALUATION
236-14
D. ECONOMIC BENEFITS
236-15
IV.
V.
VI.
VII.
236-3
I.
SUMMARY
This profile envisages the establishment of a plant for the production of maize starch
with a capacity of 300 tones per annum.
The present demand for the proposed product is estimated at 352 tones per annum. The
demand is expected to reach at 913 tones by the year 2017.
The plant will create employment opportunities for 35 persons.
The total investment requirement is estimated at about Birr 13.58 million, out of which
Birr 11.16 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 22 % and a net
present value (NPV) of Birr 6.70 million discounted at 8.5%.
II.
PRODUCT DESCRIPTION AND APPLICATION
Starch is a source of carbohydrate, which is one of the three essential elements of food. It
widely occurs in agricultural products, mainly in cereals (such as wheat, maize and rice),
and in roots and tubers of potatoes, Sweet potatoes, and Cassava. Maize (Corn) is the
leading source of starch both for food and for its use in industries.
The largest single use of for corn starch is as food, about 25% thus consumed. Industrial
uses account for the remaining 75%. The paper industry utilizes corn starch as a filler and a
sizing material. Textile, Laundry, foundry, air flotation, oil-well drilling, and adhesives use
much starch. Much of it is employed in its natural form, but it is also easily converted to
other forms. Glucose, for example, is one of the varieties which can be prepared from
starch. Dextrin is the other reaction product which can be made from starch and could be
used as adhesive in many industries such as paper printing.
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III.
A.
1.
MARKET STUDY AND PLANT CAPACITY
MARKET STUDY
Past Supply and Present Demand
The country's requirement of maize /corn starch is mainly met through import. Import of
maize/corn starch in the past ten years is provided in Table 3.1.
Table 3.1
IMPORT OF CORN/MAIZE STARCH
Year
Quantity (Ton)
1997
56.3
1998
136.1
1999
90.2
2000
31.3
2001
364.3
2002
73.2
2003
462.8
2004
460.7
2005
177.6
2006
308.2
Source: - Compiled from Customs Authority
Although the imported quantity fluctuates from year to year the general trend is an
increasing one. The data set analyzed in three periods has shown the following results.
During 1997-1999 the yearly average level of import was about 94 tonnes. In the
following three consecutive years i.e. 2000-2002 the annual average has reached to a
level of about 156 tonnes. In the recent four years i.e. 2003-2006 the yearly average
236-5
has reached to about 352 tonnes. The major reason for the increase is the growth of the
manufacturing sector, mainly the end user industries such as textiles, paper,
pharmaceuticals, cosmetics and confectioneries. The recent four years average is hence
taken as the current effective demand.
2.
Demand Projection
The demand for corn/maize starch is mainly influenced by the user industries mentioned
above. Although the imported quantity between 1997 and 2006 has been growing more
than 20% per annum on the average, a conservative growth rate of 10% is applied to
forecast the future demand by taking the current effective demand as a base (see Table
3.2.)
Table 3.2
PROJECTED DEMAND FOR MAIZE/CORN STARCH
Year
Quantity (Ton)
2008
387.2
2009
425.9
2010
468.5
2011
515.4
2012
566.9
2013
623.6
2014
685.9
2015
754.5
2016
830.0
2017
913.0
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3.
Pricing and Distribution
The average CIF price (excluding duty and other charges) of maize starch in the year
2006 is Birr 7,000 per ton.
Adding other expenses such as duty, transport and other
charges Birr 10,000 per ton is recommended. The product can be sold directly to the
bulk end user industries.
B.
PLANT CAPACITY AND PRODUCTION PROGRAM
1.
Plant Capacity
The plant is envisaged to produce 500 ton/year, in 300 working days and operating 8 hrs
per day.
2.
Production Programme
The production programme is shown in Table 3.3. The production programme is set by
considering just 300 working days per annum.
Table 3.3
PRODUCTION PROGRAMME
Year
Capacity utilisation (%)
Production programme (tons)
1
2
3
4
70
80
90
100
350
400
450
500
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IV.
MATERIALS AND INPUTS
A.
RAW MATERIALS
The annual material requirement of the plant is shown in Table 4.1 below.
Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT
Cost in '000 Birr
Item
Qty.
1. Maize
FC
LC
TC
585 tons
585
585
5,850 pcs
29.3
29.3
614.3
614.3
2. Packing Materials
(Polypropylene sacks)
Total Costs
B.
UTILITIES
Utilities such as oil, water and electricity are required by the plant.
The annual
consumption is shown in Table 4.2 below.
Table 4.2
ANNUAL CONSUMPTION OF UTILITIES
Sr.
Annual
No
Utility
1
Furnace Oil
m3
2
Water
3
Electricity
Total
Unit Consumption
('000 Birr)
F.C
L.C
Total
40
-
216.4
216.4
m3
2,250
-
12.4
12.4
KWH
25,000
-
12.4
12.4
-
241.2
241.2
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VI.
TECHNOLOGY AND ENGINEERING
A.
TECHNOLOGY
1.
Production Process
The production process of starch varies depending upon the type of raw material used.
However, the method of starch production starts with crushing or grinding of the raw
material to destroy its tissues. Thus, in this way the starch is obtained from within the
tissues. Hence, the simplified production process is outlined as follows.
•
Steeping: The purpose of steeping is to soften the kernels so that subsequent
milling operations and separations can be carried out efficiently. This unit
operation is carried out for about 40 hours.
•
Degermination and Separation: In this operation, oil-rich germ is separated
from starch, gluten, hulls and fiber. First, the corn is ground in attrition mills.
This material, leaving the mills, is a mixture of water, starch, gluten, germs and
hulls. It is further fed to mills which grind the material to a very small particle
size. After removing the hulls and fiber particles by passing it on a set of
hydrocyclones, the starch and gluten are allowed to separate using centrifugal
separators.
•
Drying: The purified starch milk is dewatered by means of a thickening filter in
order to reach a dry solid content suitable for the following drying. Drying is
operated by dosing the starch into the dryer at controlled temperature
maintained by an air conditioning unit. The dry starch is then separated by the
air stream and stored and packed in 100 kg plastic bags.
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2.
Source of Technology
The technology, machinery and equipment could be secured from an Italian Engineering
and Contracting Company Endeco Spa, Padova, Italy.
B.
ENGINEERING
1.
Machinery and Equipment
The list of machinery and equipment required by the plant is given in Table 6.1. The total
cost of this machinery and equipment is estimated at about Birr 11,160 thousands out of
which Birr 9,300 thousands will be required in foreign currency.
Table 6.1
LIST OF MACHINERY AND EQUIPMENT
Item
Qty.
Price ('000 Birr)
LC
FC
1. Steeping tanks
4
-
2. Mills
2
-
3. Screen bends
2
-
4. Hydrocyclones
2
-
5. Centrifugal Machines
2
-
6. Dryers
2
-
FOB
Fright, Insurance, Bank charge,
9,300
1,860
Total
9,300
1,860
Insurance, Transportation
Total Cost
1,860
9,300
11,160
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2.
Building and Civil Works
The major buildings and civil works include:
-
Buildings for production, offices, workshops and warehouses. The total
area required is about 500 m2.
-
Total land requirement including sewers, storage, open spaces etc. is
estimated to be 1,000 m2.
Total construction cost is estimated at Birr 1,250,000 for the building and other civil works.
The lease cost for 99 years lease holding of the land is estimated at Birr 79,200.
3.
Proposed Location
The proposed location for the plant is Alaba town in Alaba special woreda.
VII.
MANPOWER AND TRAINING REQUIREMENT
A.
MANPOWER REQUIREMENT
The manpower requirement of the plant and the monthly and annual salary expenditure are
shown in Table 7.1.
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Table 7.1
REQUIRED MANPOWER
Sr.
Manpower
Quantity
No.
Annual Cost
Salary
1
General Manager
1
3,000
36,000
2
Technical Manager
1
2,500
30,000
3
Personnel
1
1,200
14,400
4
Production Head
1
1,500
18,000
5
Supervisor
1
1,200
14,400
6
Chemist
1
1,000
12,000
7
Skilled operators
5
3,500
42,000
8
Semi-skilled Operators
5
2,000
24,000
9
Maintenance crew
5
3,500
42,000
10
Accountant
2
2,000
24,000
11
Sales Man
2
2,000
24,000
12
Unskilled labour
10
2,000
24,000
35
25,400
304,800
Total
B.
Monthly
TRAINING REQUIREMENT
The technical personnel of the plant should be trained by qualified engineers of the
machinery supplier. The cost of training shall be Birr 50,000.
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VII.
FINANCIAL ANALYSIS
The financial analysis of the maize starch project is based on the data presented in the
previous chapters and the following assumptions:-
Construction period
1 year
Source of finance
30 % equity
70 % loan
Tax holidays
Bank interest
5 years
8%
Discount cash flow
8.5%
Accounts receivable
30 days
Raw material local
30 days
Work in progress
2 days
Finished products
30 days
Cash in hand
5 days
Accounts payable
30 days
A.
TOTAL INITIAL INVESTMENT COST
The total investment cost of the project including working capital is estimated at Birr
13.58 million, of which 49 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.
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Table 7.1
INITIAL INVESTMENT COST
Sr.
Total Cost
No.
Cost Items
(‘000 Birr)
1
Land lease value
2
Building and Civil Work
1,250.00
3
Plant Machinery and Equipment
11,160.00
4
Office Furniture and Equipment
75
5
Vehicle
0
6
Pre-production Expenditure*
884.65
7
Working Capital
132.48
Total Investment cost
79.2
13,581.3
Foreign Share
49
* N.B Pre-production expenditure includes interest during construction ( Birr 784.65
thousand ) training (Birr 50 thousand ) and Birr 50 thousand costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.
B.
PRODUCTION COST
The annual production cost at full operation capacity is estimated at Birr 3.25
million (see Table 7.2). The material and utility cost accounts for 26.3 per cent, while
repair and maintenance take 2.46 per cent of the production cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Factory overheads
Administration Costs
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.
FINANCIAL EVALUATION
1.
Profitability
Cost
%
614.30
18.89
241.2
7.42
80
2.46
182.88
5.62
76.2
2.34
121.92
3.75
1,316.50
40.47
1206
37.08
730.32
3,252.82
22.45
100
According to the projected income statement, the project will start generating profit in
the first year of operation.
Important ratios such as profit to total sales, net profit to
equity (Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.
The income statement and the other indicators of profitability show that the project is
viable.
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2.
Break-even Analysis
The break-even point of the project including cost of finance when it starts to operate at
full capacity (year 3) is estimated by using income statement projection.
BE =
Fixed Cost
=
33 %
Sales – Variable Cost
3.
Pay Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 4 years.
4.
Internal Rate of Return and Net Present Value
Based on the cash flow statement, the calculated IRR of the project is 22 % and the net
present value at 8.5% discount rate is Birr 6.7 million.
D.
ECONOMIC BENEFITS
The project can create employment for 35 persons. In addition to supply of the domestic
needs, the project will generate Birr 4.57 million in terms of tax revenue.