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 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, finance, and business management. 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 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 pre-feasibility. 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 / DetailsNet Present Value (NPV) / Rs.12, 689,980
Benefits Cost Ratio (BCR) / 1.56
Internal Rate of Return (IRR) / 128%
Payback Period (years) / 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 / Amount (Rs.)Capital Cost (one time investment) / 1,524,000
Initial operational cost / 348,867
Total / 1,872,867
b. Space Requirement
Table.3. Space requirement and its cost
Space Requirement. / Cost Rs. / Quantity (NOs) / Area (Sq. ft.) / Total Cost (Rs.)Office and processing Rooms (12x15x3=540(Sq. ft.) / 600 /Sq.ft. / 3 (Rooms) / 540 / 324000
Cost of Land / 50,000/marla / 5 (Marla) / 1360 / 250000
Total / 574000
c. Machinery and Equipment
Table .4.List of Machinery& Equipment and its cost
S.No / Particulars / Quantity. No. / Approximate Cost Rs.1. / Generator / 1 / 100000
2. / Chiller for 500 lit Milk / 1 / 300000
3 / Cheese vat(Double Jacket) 200 lit / 1 / 100000
4. / Geyser / 1 / 050000
5. / Cheese press / 1 / 050000
6. / Cheese hoop / 2 / 050000
7. / Curd Cutter(Horizontal/Vertical) / 2 / 020000
8. / Stirrer(Mechanical) / 1 / 020000
9. / Cheese cutter / 1 / 020000
10. / Sealing Machine / 1 / 020000
11. / Mincing Machine / 1 / 020000
12. / Refrigerator / 1 / 050000
13. / Freezer / 1 / 050000
14. / Miscellaneous utensils / 050000
Total / 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 / Description / Amount .Rs1. / Milk @ Rs.65/lit / 13000
2. / Lactic acid/rennet / 600
3. / Packing Material / 1500
4. / Labour / 1000
5. / utilities / 500
6. / Repair & Maintenance / 208
7. / Depriciation / 635
Total / 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 / Total salary per yearLabor / 2 / 10,000 / 240,000
g. Project Financing
Following table provides details of the equity required and variables related to bank loan;
Table.8. Project financing
Description / DetailsTotal Equity (10%) / 187,287
Bank loan / 1,685,580
Mark up to borrower (per annum) / 8%
Tenure of Loan (Years) / 8
Grace Period (years) / 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 / AssumptionSales Price Growth Rate / 5% per year
Increase in cost of raw material / 5% per year
Increase in utilities / 5% per year
Debt/Equity Ratio / 90:10
Plant Building / 5%
Machinery / 5%
Office furniture & fixture / 5%
Loan Period / 8 years
Grace Period / 1 year
Loan installments / Monthly
Financial charges (interest rate) / 8%
13. Annexure: I Cash Flow of Investment
Year / Investment (Rs) / Total Cost (Rs) / Gross benefit (Rs) / Cash flow (Rs) / PV Cost (Rs) / PV Revenue (Rs) / DF / Installment (Rs) / Net Income (Rs)0 / 1,872,867 / 1,872,867 / 0 / -1,872,867
1 / 4,186,000 / 6,480,000 / 2,294,000 / 4186000 / 6480000 / 1 / 133,632 / 2,160,368
2 / 4,387,700 / 6804000 / 2,416,300 / 4062685 / 6300000 / 0.925926 / 320,838 / 2,095,462
3 / 4,599,485 / 7144200 / 2,544,715 / 3943317 / 6125000 / 0.857339 / 320,838 / 2,223,877
4 / 4,821,859 / 7501410 / 2,679,551 / 3827747 / 5954861.111 / 0.793832 / 320,838 / 2,358,713
5 / 5,055,352 / 7876480.5 / 2,821,128 / 3715835 / 5789448.302 / 0.73503 / 320,838 / 2,500,291
6 / 5,300,520 / 8270304.53 / 2,969,785 / 3607445 / 5628630.294 / 0.680583 / 320,838 / 2,648,947
7 / 5,557,946 / 8683819.75 / 3,125,874 / 3502449 / 5472279.453 / 0.63017 / 320,838 / 2,805,036
8 / 5,828,243 / 9118010.74 / 3,289,768 / 3400724 / 5320271.69 / 0.58349 / 320,838 / 2,968,930