1st Draft
PRE-FESIBILITY STUDY
MOZARELLA CHEESE PREEAPARATION
AT SMALL/FARM LEVEL
Prepared By:Mohammad Amin Shah
Tariq Aziz
Principal Scientific Officer
Anima Products Improvement Program
National Agricultural Research Center
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
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 Pakistan Agricultural Research Council (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 MOZZRELLA CHEESE
PREPARATION by providing them with a general understanding of the business, with the
intention of supporting potential investors in crucial investment decisions. The project prefeasibility 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 prefeasibility 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 Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Baluchistan,
Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
4. Executive Summary
Mozzarella Cheese preparation at small scale /farm level is considered Business in this project prefeasibility. This business is proposed to be located primarily in near milk pocket area with water, gas
and electricity installed already. All the prospects of processing of milk /Cheese preparation,
management and sale have been studied at Dairy Technology Program (DTP), Animal Sciences
Institute (ASI), National Agricultural Research Centre (NARC), Islamabad. Successful processing of
Milk and Mozzarella Cheese preparation has been achieved at DTP, NARC. After successful
experimentation, this study is declared technically feasible for small scale/at farm level. The
technology of Mozzarella cheese preparation and sale has been extended to the individuals,
Progressive Farmers as well as cheese maker at industry level. They are already practicing said
Technology and developed source of income.The preparation of Mozzarella Cheese is being
successfully carried out in Punjab (Sahiwal) and in the GilGit city. The project can be started at an
area of two to three rooms. Total cost estimate is Rs. 1.872 million, with capital investment of Rs.
1.52 million. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR),
Benefit Cost Ratio (BCR) and payback period are Rs.12, 689,980, 128%, 1.56 and 1 year, respectively.
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Different techniques are used for Mozzarella cheese prepation at small
scale/farm level. However, keeping in view the economical, technical and managerial
factors, Mozzarella Cheese preparation is suggested for the proposed project.
• Location: The business can be initiated in Milk pocket areas of Sindh (Karachi), Punjab
(Lahore, Sargodha) and some parts of Baluchistan and Khyber Pakhtunkhwa having suitable
environment for Cow and Buffalo keeping/farming.
• Product: Cheese consumption is increasing in Pakistan due to changing food habits and
special preferences for high quality milk products.Mozzarella cheese is becoming very
popular due to its taste texture ,phyisical properties and nutritive values.Its use in Pizza has
gained popularity very much in big cities.
• Target Market: In addition to major cities, such as Peshawar, Kohat, Quetta, Karachi,
Lahore, Rawalpindi and Islamabad, there is an enormous export potential for Iran,
Afghanistan and Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to at least
two individuals at the start however it can be expanded by development in bussiness.
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 proper location with Milk production, water,power,gas, equipment, and staff
play very important role in ensuring the project to run successfully.
• Cheese production and sale unit is required to maintain the record of production and
management practices for successful marketing and traceability.
• Production unit should have strong market linkages for effective disposal of produce.
7. INSTALLED AND OPERATIONAL CAPACITY FOR PREPRATION OF MOZARELLA
CHEESE AT SMALL SCALE/ FARM LEVEL.
This pre-feasibility suggests a Cheese production/preparation operation on Three Room unit
having Gas connection for Cooking of milk and water for washing of Equipment and utensils.
8. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The proposed location for establishment of the Cheese preparation Unit will primarily be
the milk pocket areas where milk will be easily available on low rates.
9. POTENTIAL TARGET MARKETS
The marketing of Cheese follows the traditional distribution channel, through middlemen or
wholesalers at farm who identifies potential buyers and negotiate price, or directly to
retailers 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 milk and milk
products 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 milk and cheese and supply & demand
which will determine the selling price.
10. PRODUCTION PROCESS FLOW
The overall production cycle for Mozzarella cheese preparation comprises of 12 months of
the year subject to the availability and quality of milk to achieve the desired output which
may vary during peak and low milk production seasons. Keeping in view the economic
perspective, it is suggested that the farm with different dairy animals as Cow and Buffalo
both may be selected for routine availability of milk.
11. Project Cost and Benefit Summary
A detailed financial model has been developed to analyze the commercial viability of
Mozzarella Cheese Preparation at small scale/Farm Level 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.
11.1
Project Economics
All figures in the financial model have been calculated for 200 Litters of milk processed for
36 kg of Mozzarella cheese. The following table shows internal rates of return and payback
period.
Table.1. Project Economics
Description
Net Present Value (NPV)
Benefits Cost Ratio (BCR)
Internal Rate of Return (IRR)
Payback Period (years)
Details
Rs.12, 689,980
1.56
128%
1
Factors that influence the profitability Cheese preparation at small scale/Farm Level are
farm management, quality of inputs and environmental factors.
a. 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
Amount (Rs.)
1,524,000
348,867
1,872,867
b. Space Requirement
Table.3. Space requirement and its cost
Space Requirement.
Cost Rs.
Office and processing Rooms 600 /Sq.ft.
(12x15x3=540(Sq. ft.)
Cost of Land
50,000/marla
Quantity
(NOs)
3 (Rooms)
5 (Marla)
Total
Area (Sq.
ft.)
540
1360
Total Cost
(Rs.)
324000
250000
574000
c. Machinery and Equipment
Table .4.List of Machinery& Equipment and its cost
S.No
1.
2.
3
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Particulars
Generator
Chiller for 500 lit Milk
Cheese vat(Double Jacket) 200 lit
Geyser
Cheese press
Cheese hoop
Curd Cutter(Horizontal/Vertical)
Stirrer(Mechanical)
Cheese cutter
Sealing Machine
Mincing Machine
Refrigerator
Freezer
Miscellaneous utensils
Total
Quantity. No.
1
1
1
1
1
2
2
1
1
1
1
1
1
Approximate Cost Rs.
100000
300000
100000
050000
050000
050000
020000
020000
020000
020000
020000
050000
050000
050000
900000
d. Furniture and Fixture
Following table provides list of Furniture and Fixture required for preparation of Mozzarella
cheese at small/ Farm level.
Table 5.List of Furniture & Fixture and its cost
Repair and Maintinance
Quantity (NOs)
Cost(Rs.)
Furniture and Fixture
Lump sump
50000
Total
50000
e. Operational and Maintenance cost
Following table provides list of Consumable Requirement for Mozzarella CHEESE
PREPARATION AT SMALL SCALE/FARM LEVEL
Table 6.Operational & Maintenance cost
Cost of production for 200 lit/day Milk for preparation of Mozzarella cheese.
S. No
1.
2.
3.
4.
5.
6.
7.
Description
Milk @ Rs.65/lit
Lactic acid/rennet
Packing Material
Labour
utilities
Repair & Maintenance
Depriciation
Total
Amount .Rs
13000
600
1500
1000
500
208
635
17443
f. Human Resource Requirement
The table below provides details of human resource required to manage basic Mozzarella
CHEESE PREPARATION AT SMALL SCALE/FARM LEVEL unit. 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
No. of Employees
Salary/person/ month
Labor
2
10,000
Total salary per
year
240,000
g. 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
187,287
1,685,580
8%
8
1
h. Revenue Generation
Final product is Mozzarella CHEESE ready for sale in market that will generate revenue. The
capacity of processing unit is 200 lit Milk produce 36 Kg of Mozzarella Cheese/day for the
first year sell price as per market Rs. 750/Kg.
12. Key Assumption
Particulars
Sales Price Growth Rate
Increase in cost of raw material
Increase in utilities
Debt/Equity Ratio
Plant Building
Machinery
Office furniture & fixture
Loan Period
Grace Period
Loan installments
Financial charges (interest rate)
Assumption
5% per year
5% per year
5% per year
90:10
5%
5%
5%
8 years
1 year
Monthly
8%
13. Annexure: I Cash Flow of Investment
Year
0
1
2
3
4
5
6
7
8
Investment
(Rs)
Total
Cost (Rs)
Gross
benefit (Rs)
Cash flow
(Rs)
PV Cost
(Rs)
PV Revenue
(Rs)
DF
1,872,867
1,872,867
4,186,000
4,387,700
4,599,485
4,821,859
5,055,352
5,300,520
5,557,946
5,828,243
0
6,480,000
6804000
7144200
7501410
7876480.5
8270304.53
8683819.75
9118010.74
-1,872,867
2,294,000
2,416,300
2,544,715
2,679,551
2,821,128
2,969,785
3,125,874
3,289,768
4186000
4062685
3943317
3827747
3715835
3607445
3502449
3400724
6480000
6300000
6125000
5954861.111
5789448.302
5628630.294
5472279.453
5320271.69
1
0.925926
0.857339
0.793832
0.73503
0.680583
0.63017
0.58349
Installment
(Rs)
133,632
320,838
320,838
320,838
320,838
320,838
320,838
320,838
Net
Income
(Rs)
2,160,368
2,095,462
2,223,877
2,358,713
2,500,291
2,648,947
2,805,036
2,968,930