PRE-FEASIBILITY STUDY
ON
INFORMAL VILLAGE BASED SEED ENTERPRISE FOR WHEAT
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH
Government of Pakistan
www.parc.gov.pk
January 2014
Contents
1.DISCLAIMER
2.PURPOSE OF DOCUMENT
3.INTRODUCTION TO SCHEME
4.EXECUTIVE SUMMARY
5.BRIEF DESCRIPTION OF PROJECT AND PRODUCT
6.CRITICAL FACTORS
7.OPERATIONAL CAPACITY FOR WHEAT SEED PRODUCTION
8.GEOGRAPHICAL POTENTIAL FOR INVESTMENT
9.POTENTIAL TARGET MARKETS
10.PRODUCTION PROCESS FLOW
11.PROJECT COST AND BENEFIT SUMMARY
11.1 PROJECT ECONOMICS
11.2 PROJECT COST
11.3 LAND REQUIREMENT
11.4 HUMAN RESOURCE REQUIREMENT
11.5 OPERATIONAL AND MANAGEMENT COST
11.6 PROJECT FINANCING
11.7 REVENUE GENERATION
12.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
13.ANNEXURE
13.1 KEY ASSUMPTIONS
LIST OF TABLES
TABLE # / TITLES / PAGE NO.11.1 / Project Economics / 7
11.2 / Total Project Cost / 8
11.3 / Land Requirement and its Cost / 8
11.4 / Human Resource Requirement its Cost / 8
11.5 / Operational & Management Cost (20 Acres) / 9
11.6 / Project Financing / 9
11.7 / Revenue of the Project / 9
1.DISCLAIMER
This information memorandum is to introduce the subject matter and provide a generalidea and information on the subject. Although, the material included in this document isbased on data / information generated from experiments and field testing by a team of relevant scientists; however, it is basedupon certain assumptions which may differ from case to case. The contained information may vary due to any change in any ofthe concerned factors, and the actual results may differ accordingly from the presentedinformation. The PARC and its employees do not assume any liability for anyfinancial or other loss resulting from this memorandum in consequence of undertakingthis 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 Village Based Seed Enterprise (Wheat Seed Production)by providing them with a general understanding of the business, with theintention of supporting potential investors in crucial investment decisions. The project pre-feasibility may form the basis ofan important investment decision and in order to serve this objective, thedocument/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 minimallydocumented 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 variousaspects 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 Programme, for young entrepreneurs, with anallocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to providesubsidized financing at 8% mark-up per annum for one hundred thousand (100,000)beneficiaries, through designated financial institutions, initially through National Bank ofPakistan (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 yeargrace 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 SUMMARY
Village based seed enterprise (Wheat Seed Production) is considered for business in this project pre-feasibility. This business is proposed to be located primarily in areas of Pakistan with canal or tube irrigation facilities. All the prospects of wheat seed production i.e. land lease, production, storage and marketing has been studied at Wheat Program, Crop Sciences Institute (CSI),National Agricultural Research Centre (NARC), Islamabad.After successful experience at National Agricultural Research Centre (NARC), Islamabad, wheat seed production is declared technically feasible for commercial purpose. Wheat seed production can be successfully carried in Sindh, Punjab and some parts of Balochistanand Khyber Pakhtunkhwa. The project can be startedat an area of 20 acres. Total cost estimate is Rs. 0.96million. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return (IRR),Benefit Cost Ratio (BCR) and payback period are Rs.4,186,861.20, 59%,1.61 and0.96years respectively.
5.BRIEF DESCRIPTION OF PROJECT AND PRODUCT
Following key parameters must be addressed as per pre-feasibility study:
• Techniques: Economical and most appropriate wheat seed productiontechnique is suggested for the proposed project.
• Location: The business can be initiated inirrigated areas of Punjab, Sindh, Balochistan and Khyber Pakhtunkhwa.
• Product: Certified seed production of wheat crop fulfills only 10 to 20% of the total nation requirement and rest of the farmers use low quality for the planting of wheat crop. There is a big gap to bridge in terms of quality wheat seed production to full the demand of the farming community. As quality wheat seed fetches high price as compared to wheat grain, there is immense potential in this entrepreneur to invest.
• Target Market: Local wheat farmers/producers in almost all different areas of Pakistan
•Employment Generation: The proposed project will provide employment directly or indirectly to 8-10 individuals. Financial analysis shows the profitability of proposed business within first year of its operation.
6.CRITICAL FACTORS
Followingprinciplesneedtobepursuedfor the production of quality wheat seed:
- Acquisition of basic/pre-basic seed from research centers/institutes
- Acquisition of land on lease.
- Hiring of farm machinery land preparation.
- Timely planting
- Balanced use of fertilizers
- Efficient weeds control
- Timely and judicious use of irrigation water
- Timely and mechanized harvesting/threshing
- Proper cleaning and storage
- Marketing
7.OPERATIONAL CAPACITY FOR WHEAT SEED PRODUCTION
Thispre-feasibility suggests a farm operation on 20 acres of land.
8.GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The proposed location for the production of quality wheat seed farms will primarily be irrigated areas of different provinces of Pakistan.
9.POTENTIAL TARGET MARKETS
The marketing of wheat seed follows the traditional distribution channel, through middlemen or wholesalers at farm who identifies potential buyers in urban/rural markets. The time spent in transportation, from farm to the retail shop, varies from area to area. Over the years, collection and transportation of seed 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. Key factors in marketing are availability of current market information, quality of seed and supply demand.
10.PRODUCTION PROCESS FLOW
The overall production cycle for the wheat seed production and storage period comprises of 11-12 months.
Followingistheprocess for the production of quality wheat seed
11.PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of wheat seed production 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 20 acres of land. The following table shows net present value, benefit cost ratio, internal rates of return and payback period.
Table 11.1: Project Economics
Description / DetailsNet Present Value (NPV) / Rs4,186,861.20
Benefits Cost Ratio (BCR) / 1.61
Internal Rate of Return (IRR) / 59%
Payback Period (years) / 0.96
Factors that influence the profitability of wheat seed production are farm management, quality and quantity of inputs and environmental factors.
11.2 PROJECT COST
Following requirements have been identified for operations of the proposed business.
Table 11.2: Total Project Cost
Head / Amount (Rupees)Land / 300,000
Human Resource Requirement (Labor & Sales Officer) / 83,000
Operational and Management / 593400
Total Cost / 976400/-
11.3 LAND REQUIREMENT
It is recommended that the proposed project should be started on a rented land, which is approximately 20 acres. The land should be somewhere near the seed market/ city of selected area in a rural or a peri-urban location.
Table11.3: Land Requirement and its Cost
Required Land (Ac.) / Per Acre Cost / Total Cost (Rs.)20 / 15000 / 300,000
11.4HUMAN RESOURCE REQUIREMENT
This project provides employments opportunity to 5-6 people to manage wheat seed production on different operations of the project. The given below table provides the labor engaging activities in the project and their wages according to the activity.
Table 11.4:Human Resource Requirement its Cost
Description / Labour days / Labour cost/person/day / Total labour cost/6 monthLabour / 20 / 350 / 70000
Description / No. of Employees / Per Month Salary / Total salary per /6month
Sales Officer / 1 / Lump sum / 76000 (Lump sum)
Total Cost / - / - / 83,000
11.5 OPERATIONAL AND MANAGEMENT COST
Following table provides list of consumable requirementfor wheat seed production.
Table11.5:Operational & Management Cost (20 Acres)
Description / RupeesSeed / 45400
Land Preparation / 80000
Fertilizer / 160000
Sowing / 20000
Irrigation / 64000
Weedicide / 10000
Rouging / 14000
Harvesting / 100000
Seed Cleaning and Grading / 20000
Storage / 30000
Marketing / 20000
Packing / 20000
Seed Certification / 10000
Total Cost / 593400
11.6 PROJECT FINANCING
Following table provides details of the equity required and variables related to bank loan;
Table 11.6: Project Financing
Description / DetailsTotal Equity (10%) / Rs. 96640
Bank Loan (90%) / Rs. 869760
Mark up to Borrower (per annum) / 8%
Tenure of Loan (years) / 8
Grace Period (years) / 1
11.7 REVENUE GENERATION
Final product of wheat seedready for sale in market will generate revenue. The capacity of farm is 760kg/20 acres kg first year,sale price as per market Rs. 1900 and total revenue will be Rs. 1444000.
Table 11.7: Revenue of the Project
Product / Unit / Sales Price (Rs./Unit) / Total First Year Revenue (Rs)Wheat Seed / 760 / 1900 / 1444000
12.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
DR. MUHAMMAD SOHAIL KUNDI
CSI, NARC, ISLAMABAD
Ph: 051-8443542
Email:
13.ANNEXURE
Annex13.1:Income Statement
Sales (Revenues) / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 101444000 / 1698144 / 1872204 / 2064105 / 2275675 / 2508932 / 2766098 / 3049623 / 3362209 / 3706835
Wages (Labor@350 per day) / 70000 / 77000 / 84700 / 93170 / 102487 / 112735.7 / 124009.3 / 136410.2 / 150051.2 / 165056.3
Cost of Seed / 45400 / 49940 / 54934 / 60427.4 / 66470.14 / 73117.15 / 80428.87 / 88471.76 / 97318.93 / 107050.8
Land Preparation / 80000 / 88000 / 96800 / 106480 / 117128 / 128840.8 / 141724.9 / 155897.4 / 171487.1 / 188635.8
Fertilizer cost (20 Acre) / 160000 / 176000 / 193600 / 212960 / 234256 / 257681.6 / 283449.8 / 311794.7 / 342974.2 / 377271.6
Sowing / 20000 / 22000 / 24200 / 26620 / 29282 / 32210.2 / 35431.22 / 38974.34 / 42871.78 / 47158.95
Irrigation / 64000 / 70400 / 77440 / 85184 / 93702.4 / 103072.6 / 113379.9 / 124717.9 / 137189.7 / 150908.7
Weedicide / 10000 / 11000 / 12100 / 13310 / 14641 / 16105.1 / 17715.61 / 19487.17 / 21435.89 / 23579.48
Rouging / 14000 / 15400 / 16940 / 18634 / 20497.4 / 22547.14 / 24801.85 / 27282.04 / 30010.24 / 33011.27
Harvesting / 100000 / 110000 / 121000 / 133100 / 146410 / 161051 / 177156.1 / 194871.7 / 214358.9 / 235794.8
Seed certification / 10000 / 10500 / 11550 / 12705 / 13975.5 / 15373.05 / 16910.36 / 18601.39 / 20461.53 / 22507.68
Cost of Inputs (Sum 11:19) / 573400 / 630240 / 693264 / 762590.4 / 838849.4 / 922734.4 / 1015008 / 1116509 / 1228159 / 1350975
Gross Profit (10-20) / 870600 / 1067904 / 1178940 / 1301514 / 1436826 / 1586198 / 1751090 / 1933114 / 2134050 / 2355860
Salaries / 13000 / 14300 / 15730 / 17303 / 19033.3 / 20936.63 / 23030.29 / 25333.32 / 27866.65 / 30653.32
Rent / 300000 / 330000 / 363000 / 399300 / 439230 / 483153 / 531468.3 / 584615.1 / 643076.6 / 707384.3
Seed Cleaning and Grading / 20000 / 22000 / 24200 / 26620 / 29282 / 32210.2 / 35431.22 / 38974.34 / 42871.78 / 47158.95
Paking / 20000 / 22000 / 24200 / 26620 / 29282 / 32210.2 / 35431.22 / 38974.34 / 42871.78 / 47158.95
Storage / 30000 / 33000 / 36300 / 39930 / 43923 / 48315.3 / 53146.83 / 58461.51 / 64307.66 / 70738.43
Marketing / 20000 / 22000 / 24200 / 26620 / 29282 / 32210.2 / 35431.22 / 38974.34 / 42871.78 / 47158.95
Insurance / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Depreciation / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Others / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Interest on Loan / 69580.8 / 69580.8 / 61782.71 / 53360.78 / 44265.09 / 34441.75 / 23832.53 / 12374.58 / 0 / 0
Sub - Total (Sum of 24:33) / 472580.8 / 512880.8 / 549412.7 / 589753.8 / 634297.4 / 683477.3 / 737771.6 / 797707.6 / 863866.3 / 950252.9
Operating Income (22-34) / 398019.2 / 555023.2 / 629527 / 711760.5 / 802528.5 / 902720.4 / 1013318 / 1135406 / 1270183 / 1405607
Tax / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Net Income (36-38) / 398019.2 / 555023.2 / 629527 / 711760.5 / 802528.5 / 902720.4 / 1013318 / 1135406 / 1270183 / 1405607
Annex13.2: Cash Flow
Year 0 / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9 / Year 10Net Profit / 398019.2 / 555023.2 / 629527 / 711760.5 / 802528.5 / 902720.4 / 1013318 / 1135406 / 1270183 / 1405607
Depreciation / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Inventory / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Income Tax / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Cash from Operations
Inflow / Outflow (A:G) / 0 / 398019.2 / 555023.2 / 629527 / 711760.5 / 802528.5 / 902720.4 / 1013318 / 1135406 / 1270183 / 1405607
Mark-up Paid / 69580.8 / 69580.8 / 61782.71 / 53360.78 / 44265.09 / 34441.75 / 23832.53 / 12374.58 / 0 / 0
Net Cash from Operations
Inflow / Outflow (I - J) / 0 / 328438.4 / 485442.4 / 567744.3 / 658399.7 / 758263.5 / 868278.7 / 989485.7 / 1123032 / 1270183 / 1405607
Owners Equity
Principal Repayment / 0 / 97476.09 / 105274.2 / 113696.1 / 122791.8 / 132615.1 / 143224.4 / 154682.3 / 0 / 0
Long Term Loan
Cash from Financing
Inflow / Outflow / 0 / 97476.09 / 105274.2 / 113696.1 / 122791.8 / 132615.1 / 143224.4 / 154682.3 / 0 / 0
Cash from Investment
Furniture and Fixture
Tunnel Structure
Machinery and Equipment
Net Cash from Investing Activities / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0
Net Cash
Inflow / Outflow (K+N+Q) / 0 / 328438.4 / 582918.5 / 673018.5 / 772095.8 / 881055.3 / 1000894 / 1132710 / 1277714 / 1270183 / 1405607
Opening Balance / 0 / 0 / 328438.4 / 911356.9 / 1584375 / 2356471 / 3237526 / 4238420 / 5371130 / 6648845 / 7919028
Closing Balance / 0 / 328438.4 / 911356.9 / 1584375 / 2356471 / 3237526 / 4238420 / 5371130 / 6648845 / 7919028 / 9324635
13.1 KEY ASSUMPTIONS
Annex.13.3: Key Assumptions
Particulars / AssumptionSale Price Growth / 12%
Increase in Output / 5%
Increase in Input Price / 10%
Debt/Equity Ratio / 90:10
Loan Tenure / 8
Grace Period / 1
Loan Installments / Monthly
Financial Charges (Interest Rate) / 8%
1