Pre - Feasibility Study
Mushroom Production and Processing
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
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Contents
1. DISCLAIMER 1
2. PURPOSE OF THE DOCUMENT 2
3. INTRODUCTION TO SCHEME 2
5. EXECUTIVE SUMMARY 2
6. BRIEF DESCRIPTION OF PROJECT 3
7. CRITICAL FACTORS 4
8. POTENTIAL TARGET MARKET 4
9. PRODUCTION PROCESS FLOW 4
10. PROJECT COST SUMMARY 5
11.1: Project Economics 5
11.2: Project Financing 6
11.3: Project Cost 6
11.4: Space Requirement 6
11.5: Machinery and Equipment 6
11.6: Raw Material Requirements 7
11.7: Revenue Generation 7
11.8: Human Resource Requirement 8
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS 8
14. ANNEXURES 9
15: KEY ASSUMPTIONS 11
List of Table
Table 1. Project Economics ……………………………………………………………...... 5
Table 2. Project Financing……………………………………………………………………….6
Table 3. Capital Investment for the Project……………………………………………………....6
Table 4. Land Requirement………………………………………………………………………6
Table 5. List of machinery and equipment……………………………………………………….7
Table 6. Cost of Raw Material……………………………………………………………………7
Table 7. Revenue of the Project………………………………………………………...... 7
Table 8. Human Resource Requirement…………………………………………………………..8
List of Annexure
Annexure 1. Income statement…………………………………………………………………11
Annexure 2. Cash flow statement……………………………………………………………....12
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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 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 covers various aspects of project concept development, start-up, and production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors in Mushroom Production and Processing by providing them a holistic as well as a micro view of 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. Mushroom production could give employee and business investment opportunities for youth and mid-age people in rural area. Mushroom production can be managed by people who have lower level education in rural area. They may need short time training on mushroom production.
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, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
4. EXECUTIVE SUMMERY
Mushrooms are gradually becoming popular as they are rich in protein, minerals and vitamins and very low n fat and sugar. Fresh mushrooms have very limited life and hence they need to be consumed within few hours. But processing and canning increases their shelf life to few months.
It is also known to have medicinal values and certain varieties of mushrooms can inhibit growth of cancerous tumor. The productivity of mushroom is higher than any crop. Food, nutritional and medicinal values apart, mushroom growing can be efficient means of waste disposal (agricultural, industrial and forest wastes), since it can use the wastes as medium of growth. Hence, it could be considered as eco-friendly. In Pakistan only three types, namely, button, oyster and straw mushrooms are commercially cultivated. Further, mushroom growing is highly labor intensive and requirement of land is comparatively low.
Market for mushrooms is growing rapidly in Pakistan because of their nice aroma, nutritious values, subtle flavor and special taste. Many exotic food preparations like soup, vegetables, pickles etc. are made from them. They are also used for garnishing, to prepare many varieties of gravy and for stuffing several food preparations. But they are still considered as up-market product and their consumption is limited to urban and semi urban areas. Fresh mushrooms have very limited shelf life but processed and canned mushrooms have fairly long shelf life and can be sold even at far off places, Star hotels and exclusive restaurants. The product can be sold even through departmental stores, super markets etc. In Pakistan the biggest mushroom supplier markets are Islamabad, Lahore and Karachi. Total cost estimate is Rs.1.9 million, with fixed investment of Rs. 0.6 million and working capital amounting to Rs. 0.9 million. Given the cost assumptions, Net Present value (NPV) Rs.1, 1756,876, Internal Rate of Return (IRR) 66%, Benefit Cost Ratio (BCR) 2.4 and payback period are 1.5 years.
5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: mushroom is indoor cultivated crop because it has no chlorophyll and there is no photosynthesis. It is grown on agricultural and industrial wastes with the little amendments of gypsum and limes.
• Location: The business can be initiated in cold areas especially northern hilly areas of Pakistan like Kashmir Gilgit Swat Kaghan and Muree/ galiyat. Temperature range should be between 15-25 oC.
• Product: mushroom consumption is increasing in Pakistan due to changing food habits and special preferences for high quality protein. Mushrooms are growing rapidly in Pakistan because of their nice aroma, nutritious values, subtle flavour and special taste. Many exotic food preparations like soup, vegetables, pickles etc. are made from them. They are also used for garnishing, to prepare many varieties of gravy and for stuffing several food preparations.
• Target Market: In addition to major cities, such as Karachi, Lahore and Islamabad, there is an enormous export potential for Middle Eastern countries.
• Employment Generation: The proposed project will provide direct employment to three individuals. Financial analysis shows the profitability of proposed business within first year of its operation.
6. CRITICAL FACTOR
Mushroom production is planned under natural conditions. One important factor is prevailing climatic condition (cold climate) in the area where the mushroom farm will be established economically. The different mushroom that can be cultivated artificially have different temperature requirement for mycelal growing and fruiting. To obtain the good quality mushroom light, temperature, and humidity must be carefully controlled. Another critical factor is the location of the mushroom farm, one should consider the distance between the farm and the place where the substrate will be obtained, the greater the distance the higher will be the cost of transporting and hence higher the cost of production. Success of mushroom farming depends on the availability of markets. Skilled workers are required for post harvest handling, drying and packing of the mushroom prior to market.
7. POTENTIAL TARGET MARKETS
The marketing of mushroom 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 and cost spent in transportation, from farm to the retail shop, varies from area to area. The key factors in marketing are availability of current market information, quality of mushroom and supply & demand which will determine the selling price. The overall production cycle for the mushroom farming comprises of 5 months under natural condition. Where as an additional crop of 5 month can be obtained under artificially controlled conditions. Fresh mushroom is marketed in the super store of Karachi, Lahore and Islamabad. The surplus produce is dried and canned which is marketed to hotels, restaurants and bakers. The potential targeted markets for the mushroom are the cold areas especially northern hilly areas of Pakistan like Kashmir Gilgit Swat Kaghan and Muree/ galiyat.
8. PRODUCTION PROCESS FLOW
The important channels of mushroom marketing in the area are:
(1) Mushroom grower Wholesaler/Commission agent → Retailer→ Consumer,
(2) Mushroom grower →Wholesaler/Commission agent → Consumer,
(3) Mushroom grower→ Retailer→ Consumer, and
(4) Mushroom grower→ Consumer.
Following production process is generally followed:
9. PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of mushroom Production and processing 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.
9.1 Project Economics
All the figures in this financial model have been calculated for mushroom production of 400 sq ft room with an annual production of 200 tins of mushroom per day.
The following table shows internal rate of return of mushroom.
Table 1. Project Economics
Description / DetailInternal Rate of Return (IRR) / 66%
Pay back period (years) / 1.5
Net present value (NPV) / 1,17568,76
Benefit Cost Ratio (BCR) / 2.4
Returns on the scheme and its profitability are highly dependent on quality of mushroom, 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. Similarly, good quality spawn and choosing best suitable location will yield more profit in this business.
9.2 Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table 2. Project financing
Description / DetailTotal equity (10%) / Rs. 195620
Bank loan (90%) / Rs. 1760850
Mark up to the borrowers (%/annum) / 8%
Tenure of loan (year) / 08
Grace period (year) / 01
9.3 Project Cost
Following requirements have been identified for operations of the proposed business.
Table 3. Capital Investment for the Project
Capital investment / Amount(Rs.)Racks / 450000
Vehicale / 50000
Mechienary and equipment / 56100
Total capital cost / 556100
Initial working capital / 735500
Total project cost / 1291600
9.4 Space Requirement
Basically mushroom production can be done vertically. A space of 3000 sq/ft area is required for mushroom shed. Its production is done by making shelves in the room. The shed space will be taken on the rental/lease basis. The rent is paid in advance for the one year. The rent of the room varies area to area and location to location.
Table 4: Land Requirement
Area Required / Area(Sq.ft) / Monthly Rent Charges(Rs.) / Yearly Rent(Rs.)Mushroom farm / 3000 / 2,500 / 30000
Total Rent / 30000
9.5 Machinery and Equipment
Following table provides list of machinery and equipment required for production and packaging of mushroom.
Table 5. List of Machinery and Equipment
Spray pump / 1 / 6000 / 6000
Humidity sensor / 1 / 3000 / 3000
Temperature sensor / 1 / 400 / 400
Electric paking gun / 1 / 1000 / 1000
Tool kit / 1 / 2000 / 2000
Weight machine / 2 / 3500 / 7000
Total / - / - / 19400
9.6 Raw Material Requirements
Table 6: Cost of Raw Material
Description / Unit / Quantity / Rate / Rs. TotalWheat straw / Ton / 40 / 7000 / 280000
Poultry manure / Ton / 20 / 1800 / 36000
Spawn / Kg / 400 / 600 / 240000
Gypsum / Kg / 1200 / 8 / 9600
Urea / Bags / 2 / 1800 / 3600
Polythin bag / Kg / 200 / 220 / 44000
Rubber band / Kg / 3 / 600 / 1800
Peet moss / Kg / 10 / 8000 / 80000
Thermopol paking / No / 3000 / 2 / 6000
Glint sheet / No / 10 / 500 / 5000
Sticker / - / 30000 / 0.5 / 15000
Lime / Bags / 15 / 300 / 4500
Pesticide / Liter / 10 / 1000 / 10000
Total (Rs) / - / - / 735500
9.7 Revenue Generation
Total expected mushroom crop on 3000sqft farm would be 6 ton that is 6000kg approximately. The marketing price of the mushroom is 400 Rs per Kg which is the minimum rate. The total revenue of the expected crop would be 2400000 Rs on first year.
Table 7. Revenue of the Project
Expected Mushroom crop / Expected crop / price / Sale incomeYear 1 / 6000 kg / 400 / 2400000
9.8 Human Resource Requirement
The table below provides details of human resource required to manage basic mushroom farm. The staff salaries are estimated according to the market trends. However, these requirements and pay scales may vary area to area.
Table 8. Human Resource Requirement
Description / No. of Employees / Salary/person/ month / Total salary per yearLabors / 2 / 10000 / 20,000
Sales man / 1 / 10000 / 10,000
Total / 30,000
10. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
Dr. Sheikh Muhammad Iqbal
PATCO Manager
Ph: 051-8443211
E-mail.
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ANNEXURE 1
INCOME STATEMENT
Year / 1 / 2 / 3 / 4 / 5 / 6 / 7 / 8 / 9 / 102,400,000 / 2,640,000 / 2,904,000 / 3,194,400 / 3,513,840 / 3,865,224 / 4,251,746 / 4,676,921 / 5,144,613 / 5,659,074
lime / 4,500 / 4,725 / 4,961 / 5,209 / 5,470 / 5,743 / 6,030 / 6,332 / 6,649 / 6,981
Sticker / 15,000 / 15,750 / 16,538 / 17,364 / 18,233 / 19,144 / 20,101 / 21,107 / 22,162 / 23,270
Pesticide / 10,000 / 10,500 / 11,025 / 11,576 / 12,155 / 12,763 / 13,401 / 14,071 / 14,775 / 15,513
glint sheet / 5,000 / 5,250 / 5,513 / 5,788 / 6,078 / 6,381 / 6,700 / 7,036 / 7,387 / 7,757
Labour / 360,000 / 378,000 / 396,900 / 416,745 / 437,582 / 459,461 / 482,434 / 506,556 / 531,884 / 558,478
chaff wheat straw / 280,000 / 294,000 / 308,700 / 324,135 / 340,342 / 357,359 / 375,227 / 393,988 / 413,688 / 434,372
poultry manure / 36,000 / 37,800 / 39,690 / 41,675 / 43,758 / 45,946 / 48,243 / 50,656 / 53,188 / 55,848
spawn / 240,000 / 252,000 / 264,600 / 277,830 / 291,722 / 306,308 / 321,623 / 337,704 / 354,589 / 372,319
Gypsum / 9,600 / 10,080 / 10,584 / 11,113 / 11,669 / 12,252 / 12,865 / 13,508 / 14,184 / 14,893
polythin bags / 44,000 / 46,200 / 48,510 / 50,936 / 53,482 / 56,156 / 58,964 / 61,912 / 65,008 / 68,258
rubber band / 1,800 / 1,890 / 1,985 / 2,084 / 2,188 / 2,297 / 2,412 / 2,533 / 2,659 / 2,792
peet moss / 80,000 / 84,000 / 88,200 / 92,610 / 97,241 / 102,103 / 107,208 / 112,568 / 118,196 / 124,106
fresh paking thrmopol paking / 6,000 / 6,300 / 6,615 / 6,946 / 7,293 / 7,658 / 8,041 / 8,443 / 8,865 / 9,308
Cost of Goods Sold / 1,091,900 / 1,110,270 / 1,165,784 / 1,224,073 / 1,285,276 / 1,349,540 / 1,417,017 / 1,487,868 / 1,562,261 / 1,640,374
Gross Profit / 1,308,100 / 1,529,730 / 1,738,217 / 1,970,327 / 2,228,564 / 2,515,684 / 2,834,729 / 3,189,053 / 3,582,352 / 4,018,700
Rent / 30,000 / 33,000 / 36,300 / 39,930 / 43,923 / 48,315 / 53,147 / 58,462 / 64,308 / 70,738
Utilities / 66,000 / 72,600 / 79,860 / 87,846 / 96,631 / 106,294 / 116,923 / 128,615 / 141,477 / 155,625
Depreciation / 55,610 / 55,610 / 55,610 / 55,610 / 55,610 / 55,610 / 55,610 / 55,610 / 55,610 / 55,610
Interest on Loan / 140,846 / 140,846 / 125,061 / 108,014 / 89,602 / 69,717 / 48,242 / 25,049 / - / -
Sub - Total / 292,456 / 302,056 / 296,831 / 291,400 / 285,766 / 279,936 / 273,922 / 267,736 / 261,395 / 281,973
Operating Income / 1,015,644 / 1,227,674 / 1,441,385 / 1,678,928 / 1,942,798 / 2,235,747 / 2,560,807 / 2,921,317 / 3,320,957 / 3,736,727
Tax / 78,988 / 105,467 / 137,367 / 181,277 / 233,819 / 292,166 / 359,279 / 449,071 / 548,629 / 652,202
Net Income / 936,656 / 1,122,206 / 1,304,018 / 1,497,651 / 1,708,979 / 1,943,581 / 2,201,529 / 2,472,246 / 2,772,328 / 3,084,525
CASH FLOW STATEMENT