1st Draft
Pre-Feasibility Study
FRUIT AND FOREST PLANT NURSERIES
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
1
Contents
1
DISCLAIMER........................................................................................................................................... 4
2
PURPOSE OF THE DOCUMENT .............................................................................................................. 4
3
INTRODUCTION TO SCHEME ................................................................................................................. 5
4
EXECUTIVE SUMMARY .......................................................................................................................... 5
5
BRIEF DESCRIPTION OF PROJECT .......................................................................................................... 6
5.1
Tools & equipments ...................................................................................................................... 7
5.2
Technical Feasibility ...................................................................................................................... 7
5.3
Green Shed.................................................................................................................................... 7
5.4
Propagation ................................................................................................................................... 8
5.5
Irrigation........................................................................................................................................ 8
5.6
Cultivation ..................................................................................................................................... 8
5.7
Environmental Aspects ............................................................................................................... 10
5.8
Project Benefits ........................................................................................................................... 10
5.9
Location....................................................................................................................................... 10
5.10
Market Analysis ........................................................................................................................... 11
5.11
Risk analysis ................................................................................................................................ 11
6
CRITICAL FACTORS .............................................................................................................................. 12
7
INSTALLED AND OPERATIONAL CAPACITIES ....................................................................................... 12
8
PRODUCTION PROCESS FLOW ............................................................................................................ 12
9
PROJECT COST SUMMARY .................................................................................................................. 12
9.1
PROJECT ECONOMICS ................................................................................................................. 13
9.2
PROJECT FINANCING ................................................................................................................... 13
9.3
PROJECT COST ............................................................................................................................. 13
9.4
RAW MATERIAL REQUIREMENTS ................................................................................................ 14
9.5
HUMAN RESOURCE REQUIREMENT............................................................................................ 14
9.6
REVENUE GENERATION............................................................................................................... 14
9.7
WORKING CAPITAL REQUIREMENTS........................................................................................... 14
2
LIST OF TABLES
Table 1 Project Economics ......................................................................................................................... 13
Table 2 Project Financing ........................................................................................................................... 13
Table 3 Capital Investment for the Project ................................................................................................. 13
Table 4 Cost of Material .............................................................................................................................. 14
Table 5 Human Resource Requirement ...................................................................................................... 14
Table 6 Project Economics per year ........................................................................................................... 15
Table 7 Working Capital Requirement ....................................................................................................... 15
Table 8 Key Assumption ............................................................................................................................ 15
Table 9 FINANCIAL STATEMENT in PKR ............................................................................................ 17
3
1
DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general idea and
information on the said subject. Although, the material included in this document is based on
data/information gathered from various reliable sources; however, it is based upon certain assumptions
which may differ from case to case. The information has been provided on an ‘as is where is’ basis
without any warranties or assertions as to the correctness or soundness thereof. Although, due care and
diligence has been taken to compile this document, the contained information may vary due to any
change in any of the concerned factors, and the actual results may differ substantially from the
presented information. SMEDA, its employees or agents do not assume any liability for any financial or
other loss resulting from this memorandum in consequence of undertaking this activity. The contained
information does not preclude any further professional advice. The prospective user of this
memorandum is encouraged to carry out additional diligence and gather any information which is
necessary for making an informed decision; including taking professional advice from a qualified
consultant / technical expert before taking any decision to act upon the information.
2
PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project
identification for investment. 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, marketing, finance and business management.
The purpose of this document is to facilitate potential investors in Establishment of Nurseries for Fruits
and Forest Plants by providing them a holistic as well as a micro view of the business with the hope that
such information as provided herein will help the potential investors in crucial investment decisions. 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 thumbs of rules;
best practices developed by existing enterprises by trial and error, and certain industrial norms 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 basis of any Investment Decision.
4
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 subsidised financing at 8% mark-up per
annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions,
initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).
Small business loans upto 2 million with tenure up to 8 years, inclusive of a 1 year grace-period and a
debt : equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh,
Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered
Tribal Areas (FATA).
4
EXECUTIVE SUMMARY
The project of Nurseries Business will include the production and supply of new and best available fruit
varieties along with Forest collection. The proposed business will start at an area of 8 kanal (160 Marla)
that can further be increased with the expansion of the business during later years.
It is proposed to be located at areas where climate, soil, temperature are favorable along with better
distribution network to the major markets and potential consumers. Patoki in Punjab is the major hub
for nursery business in the country for all varieties and plants. For small scale level the nurseries can be
managed at every part of the country to meet the local requirements in different localities. In urban
areas mostly ornamental and fruit plants are demanded, whereas, in rural areas the utilization of fruit,
forest and vegetable is according to the farmer’s interest. The proposed project will provide direct
employment to 05 fulltime people along with required workforce during time to time as per
requirements and keeping in view the seasonal working.
Product(s) include Fruit, Forest, Ornamental Plants and vegetable nurseries.
1. Area Required approximately 8 kanal
2. Total Cost Estimate is
Rs. 2.27 million with fixed investment Rs. 1.2 million
and
working
capital of approx Rs. 1 million
Given the cost assumptions IRR and payback are 76% and 3.5 years respectively the most critical
considerations or factors for success of the project are;
1. Strong networking with other nursery growers
2. Best varieties of nursery plants
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5
BRIEF DESCRIPTION OF PROJECT
Nursery Business will be used to meet the growing need of best varieties of fruit, forest ornamental
plants and vegetable seedlings. The nursery industry is a very wonderful and exciting business. The
production of plants for profit has the potential of providing many personal and financial rewards.
However, as with many other farming enterprises that appear to be very simple on the surface, the
nursery business is very complex and requires a great deal of knowledge and skill not only in production,
but also in labor management and marketing.
The nursery industry is very diverse. It is a business, and like any other business, the probability of
success depends on imagination, determination, planning, and good management of the five major
resources.
Nursery producers utilize one or more of the following production systems: field, container,
and pot-in-pot.
I.
Field production involves planting of seeds and cutting directly in the ground and then
harvesting them either as bareroot or balled-and burlapped (B&B) material and sold as
bareroot material or transplanted and sold in containers.
II.
Container production entails growing plants in containers filled with soilless growing
media and placed in established production areas on the ground or on benches inside a
greenhouse or similar protective structure.
III.
Products will be grafted plants of tropical subtropical and deciduous fruit plants
It is best to concentrate on only one aspect of production (propagation, container, field, Pot-N- Pot)
when first getting into the business consider buying liners until the business is running smoothly and
only then consider producing some of your own liners, if thought to be advantageous. However, one
could start a liner nursery and concentrate on that aspect of the business and sell liners rather than
landscape size plants. Marketing is an extremely important part of the nursery business and should be
given equal status and attention to production. Marketing efforts should begin as soon as the
commitment has been made to start a nursery business. Producers should begin to attend nursery
meetings, trade shows, retail and landscape contractor meetings, during the first year of production, if
not before. Proximity to other nurseries can be an advantage. Through cooperative buying, marketing,
shipping, and sharing of technology and equipment, costs can be reduced. A common practice among
nurseries that are close is to pool plants to make up shortfalls in numbers, sizes or species to fill orders.
There are three major areas in which nursery producers compete: price, quality and service (delivery).
It is very difficult to compete with larger nurseries on production costs. Therefore, new competition
must strive to produce higher quality plants and provide better service.
6
Another area in which smaller nurseries can compete is by doing something a little different in
marketing or in inventory. Smaller nurseries can fill a niche market by producing specialty nursery crops.
These are crops that are not in large enough demand to warrant high volume production or plants that
require special skills and handling.
5.1 Tools & equipments
Simple tools & equipments are required to carry out the activity.
5.2
Pickaxe:
for breaking up hard and stony ground.
Hoe:
for loosening the soil.
Shovel:
for moving earth, sieving soil, and mixing soil.
Rake:
for breaking up and levelling the soil.
Sieve (chan’ni):
for sifting soil for the seedbeds and potting
Funnel:
for filling pots with soil mixture.
Scoop:
for filling and compacting soil in pots.
Watering can:
for watering seedlings.
Wheelbarrow:
for transporting potting soil, filled pots, tools, seedlings, etc.
Pruners:
for pruning the roots that grow out of the pots.
Germination tray:
for germinating small quantities of seed.
Pointed sticks:
for weeding seedbeds and potted stock.
Tools for pricking:
for lifting germinated seedlings into pots
Water pipe:
for irrigation
Technical Feasibility
Technical feasibility takes into account whether the required technology is available or not and whether
the required resources are available in terms of manpower and equipment.
A successful nursery producer needs knowledge of plants, soils, fertilizers, pesticides, irrigation, Tools,
pruning, harvesting methods, overwintering techniques, packing practices, etc. It is not just casting seed
to the wind and watching the trees and profits grow.
5.3 Green Shed
A green shed is usually an outdoor open structure with primary purpose of providing shade. It is used to
modify the environment from protecting from hot, reducing the intensity of sunlight through lowering
temperature and maintaining the humidity. It is also used for protection against the cold during winter
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season by covering it with a plastic sheet. Therefore the location of this green shed should be selected
accordingly. Factors such as amount of sunlight, nearby buildings and tree, and the direction of wind
should be consider at the time of construction of green shed facility. The size of green shed depends
upon the requirements. No specific width and length matter. The height of the green shed will depend
upon the length and width. Structure of the green shed can be made with wood (bamboo etc), Metal
(steel, Iron and Aluminium) and PVC and G.I Pipes. The most common structures in Pakistan are made
with steel pipes of with G.I pipes or a mix of G.I and Iron.
Low, medium and high tunnel are used in nursery business. Low tunnels (approx 1meter high) are used,
while medium sized (approx 2 meter) and high tunnel (approx 3meter) are used mainly for propagation
and storage of plants and protection from heat and frost.
5.4 Propagation
The shed will be used to propagate seedlings. Seedlings also will be grown in seedling bags in the shade
covered area and the open nursery.
Propagation of fruit tree crops, hard woods and forestry species will involve field investigations to
identify and select good sources of plant seeds for collection and propagation in seedling bags in the
open nursery. Propagation of fruit tree crops also will involve grafting techniques to produce seedlings
with desired qualities. Planting media will include commercial potting mixes for vegetable seedlings and
suckers.
5.5 Irrigation
The open nursery will be irrigated by a ground sprinkler system while the shade covered area will be
irrigated by elevated sprinklers attached overhead to the shade structure. A misting propagator will be
installed in the screen house. The irrigation system will be gravity-fed at a pressure of approximately 40
psi from a spring at 200 feet above the site.
5.6 Cultivation
The green shed will provide an environment which is free from insects and other vectors. Weed control
in the shade house and open nursery will be affected by use of polypropylene ground cover plastic.
8
Fertilizer will be applied through mixing in the medium. Insecticides will be applied according to
manufacturers’ specifications and the growing conditions.
Plants typically will be ready for sale at the appropriate age and height for transplanting depending on
the specific crop, and will be sold either as rooted plugs or in seedling bags. .
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5.7 Environmental Aspects
The environmental aspects of the plant nursery will be of priority importance in the development of the
project. All steps will be taken to ensure that the land clearing and construction work takes place in
5.8 Project Benefits
The benefits of the proposed plant nursery will include the following:
1. Introduction of improved varieties of selected plants with higher yield, resistance to disease and
lower mortality rates
2. Reduced time and resources spent by farmers in self-propagation of planting material
3. Establishment of efficient and modern plant propagation centre
4. Availability of high-quality planting material on consistent and predictable basis allowing
farmers to plan production
5.9 Location
The proposed business can be done in all over the country where fruits, forest are grown. However, the
location should be selected on the basis of nursery size and keeping in view the minimum risks
associated with infrastructure development to production level and from production level to marketing
and distribution mechanism. Site selection and layout are very important in the early stages of the
planning process. Your choices will directly affect your success in growing and selling plants. When
purchasing/ leasing on rent, you should come prepared with questions. Prioritize your list of
requirements based on what site characteristics are the most difficult and costly to repair after you have
purchased the land. Do not purchase land or take on lease, blindly because that will lead to greater
cost, reduced plant quality, increased product losses, and reduced profit. For small level business in
which some plants are procured from outside and some are grown at own capacity. The location should
be near the main highways, city area and already existing nursery market.
Location of your nursery may be predetermined based on availability of property or for personal
reasons. Alternatively, you may be free to choose a location that best suits your needs and goals. In
either case, your location choice will directly affect your decisions on marketing, employee hiring, and
future expansion.
In selecting a location you should consider proximity to other nurseries, to major cities, and to highways.
Other factors to consider include availability of transportation facilities, distance to market, competition,
availability of reliable labor (full-time, part-time, and seasonal), and availability of inexpensive land for
future expansion. (You should know that locating near other nurseries may be mutually beneficial for
small operators by providing markets for specialty items, sharing transportation services, and increasing
the frequency of buyer visits.) Yet another consideration in choosing a location is the present and future
regulatory status of the area (e.g., zoning, taxation, labor relations, environmental issues, and product
inspections).
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5.10
Market Analysis
Orchard growers, small, medium and large scale farmers along with huge local markets in Karachi,
Lahore and Islamabad for ornamental plants are the targeted markets for the nursery business. Nursery
owner must analyze and organize his or her own marketing channels, develop a sales program, prepare
the product for distribution, extend credit, and make collections. There are many resources available
through bookstores and libraries which provide tips on marketing and business management
techniques. Five possible approaches to defining your market and customers are:
1. Define the types of customers within your target market (average salary, average number per
household) based on census and local Chamber of Commerce data;
2. Determine customer preferences for products and services through questionnaires and by
investigating the local competition;
3. Use local and national industry association data and commercial publications to determine
market trends;
4. Anticipate future preferences on the types and number of plants to grow; and
5. Promote plants which you or other colleagues consider outstanding
5.11 Risk analysis
Compared to many agricultural crops, greenhouse or nursery crops offer the opportunity to produce a
fair amount of income on small acreage. With this income potential, however, come sizable risks. Risk
results from the inability to predict the future accurately. Sources of risks that may affect the grower’s
income are production, marketing, financial, legal, environmental, and human resource risks.
Production risk concerns variation in output arising from many uncontrollable events such as weather
(wind, rain, hail, etc.) insects and pests, technical challenges, diseases, input quality and availability. Fire,
theft, and other casualties are also sources of production risk.
Marketing risk concerns price risk and the availability of markets. Price risk is related to the variability
of the price of commodities or the price of inputs, and to unanticipated forces that lead to dramatic
changes in retail and wholesale prices.
Financial risk has three basic components: interest rate risk, liquidity, and solvency. Interest rate risk
concerns the cost of short-term, intermediate, and long-term debts. Liquidity concerns the ability of a
business to pay its cash obligations in a timely fashion.
Legal and environmental risk results from changes in policies and regulations that affect greenhouse
and nursery business. For example, changes in government rules regarding the use of pesticides, tax,
trade, environmental, or credit policy may alter the cost of production.
Human resources risks may result from events associated with greenhouse operators and their families,
professional consultants, and employees (e.g., theft, accidents, death, divorce, injury, seasonal labor
needs, or poor health of key personnel).
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6
CRITICAL FACTORS
Individuals considering entering the nursery business need to carefully consider the following factors:
1. Networking with other growers and farmers from all over the country would be necessary to
meet any excess requirement or shortfall
2. Consistent quality of plants with complete knowledge of plant variety
3. Availability of skilled manpower
7
INSTALLED AND OPERATIONAL CAPACITIES
For this project it is assumed that the production will start from the very first year for the products like
pots, plants grown through cuttings, varieties along with purchases from other whole salers and
propagators.
8
PRODUCTION PROCESS FLOW
Basis Infrastructure
Plant and Variety Selection
Development and Growth
Distribution
Fruit Plants Nursery Plants
Forest Plants Nursery Plants
9
PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of Nursery Project
under the ‘Prime Minister’s Youth Business Loan’ program.
Various cost and revenue related
assumptions along with results of the analysis are outlined in this section.
12
9.1 PROJECT ECONOMICS
All the figures in this financial model have been calculated for Nursery Production annual production of
around 20,000 Plants.
The following table shows internal rate of return and payback period.
Returns on the scheme and its profitability are highly dependent on quality of plants and selection of
varieties, suitable location, good farming practices and availability of trained staff. The project will not
be able to cover the potential demand of consumers and recover payments, if these factors are not
efficiently managed and will also lead to increased operating cost.
Table 1 Project Economics
Description
Net Present Value (NPV)
Benefits Cost Ratio (BCR)
Internal Rate of Return (IRR)
Payback Period (years)
Details
Rs. 3,128,750
1.81
40%
3.41
9.2 PROJECT FINANCING
Following table provides details of the equity required and variables related to bank loan;
Table 2 Project Financing
Description
Total Equity (10%)
Bank loan (90%)
Mark up to borrower (per annum)
Tenure of Loan (Years)
Grace Period (years)
9.3
Details
Rs. 244,970
Rs.1,982,030
8%
8%
1
PROJECT COST
Following requirements have been identified for operations of the proposed business.
Table 3 Capital Investment for the Project
Required Capital
Amount
2 Green houses 3000 SFT each
500,000
Water Storage Tank
10,000
Pots
45,000
Equipments
20,000
Water Bore
125,000
Peter Pump
100,000
Office and Equipments
150,000
Misc. Expenses
30,000
Total Capital Cost
980,000
13
9.4 RAW MATERIAL REQUIREMENTS
Table 4 Cost of Material
Item
Unit
Land (Leased /
Rental
basis)
50,000
Plants
Manure
Special Soil
No
Trolley
Trolley
Polythene
Bags/Trays/Pots
Total
Qty
20000
15
5
Rate (Rs)
Amount
20
2000
2000
50000
400,000
30,000
10,000
No
100,000
590,000
9.5 HUMAN RESOURCE REQUIREMENT
Table 5 Human Resource Requirement
Description
Nos.
Expert
1
Skilled Labour
2
Total
per
month
Total per year
Salary/employee/month
25,000
20,000
35,000
420,000
9.6 REVENUE GENERATION
Sale of fruit and forest plant will mostly be during mid January to end of March and in august during
monsoon period in some parts of the country. Vegetable nursery plants will be sold during rabi and
kharif period while ornamental plants can continue throughout the year.
9.7 WORKING CAPITAL REQUIREMENTS
It is estimated that an additional amount of approximately Rs. 298,662 will be required as cash in hand
to meet the initial working capital requirements during operations. The requirement is based on the
utilities, salaries, raw material inventories and miscellaneous expense for at least three months. The
following table gives the break up.
14
Table 6 Project Economics per year
Products
Fruit Plants (4 kanal)
Forest plants (4 kanal)
1. Saplings
2. Cuttings
Unit
15,000
Sales
Price Amount
(Rs./Unit)
(Rs)
50
750,000
80,000
20,000
15
2
1,200,000
40,000
Total Sale in second year with full
capacity
1,990,000
995,000
Table 7 Working Capital Requirement
Items
Months
Monthly
Charges (Rs.)
Utilities
Salaries
6
6
12,000
210,000
Miscellaneous Expense
Total
6
15,000
237,000
Table 8 Key Assumption
Particulars
Sales Price Growth Rate
Increase in cost of raw material
Increase in utilities
Debt/Equity Ratio
Loan Period
Grace Period
Loan Installments
Financial charges (interest rate)
Assumption
4% per year
5% per year
5% per year
90:10
8 years
1 year
Monthly
8%
15
Lay out plan for 8 kanal Land Area
50,000 polythene bags
per kanal
3000 Medium Pots
Per kanal
1500-2000 average
large Pots per kanal
Fruit plants
Larger Plants
Propagation Area
Water Storage
I Kanal = 20 X 273=
5460 Sq.ft
Raw material and
Store Room
Office and Front
Sitting area
Two Green Gouses
Display
Display
One green house can
accommodate 3000
plants
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Table 9 FINANCIAL STATEMENT in PKR
Year
0
Capital
Cost
Infrastructure
Oper. and
Maint.
Plants &
Raw
Material
1217000
Human
Resource
Total
Cost
Gross
Benefit
Cash
flow
590000
420000
2227000
0
2227000
Interest
Income
after
Interest
Payment
PV Cost
PV
Benefit
1
0
590000
420000
1010000
1990000
980000
131076
848924
1010000
1990000
2
25000
619500
441000
1085500
1990000
904500
306447
598053
1005093
1842593
3
26250
650475
463050
1139775
2069600
929825
306447
623378
977173
1774348
4
27563
682999
486203
1196764
2152384
955620
306447
649173
950030
1708632
5
28941
717149
510513
1256602
2238479
981877
306447
675430
923640
1645349
6
30388
753006
536038
1319432
2328019
1008587
306447
702140
897983
1584410
7
31907
790656
562840
1385404
2421139
1035736
306447
729289
873039
1525728
8
33502
830189
590982
1454674
2517985
1063311
306447
756864
848788
1469220
Technical Resource Persons
Dr. Khalid Mahmood Qureshi 051-8443751
0300-5241628
kmq_2008@hotmail.co.uk
Dr. Hafeez-ur-Rahman
051-8443760
0301-5462535
askhafeez594@yahoo.co.uk
Dr. Imtiaz Ahmad Qamar
051-8443668
0303-5091922
iaqamar@gmail.com
17