PROJECT PROPOSALFOR ESTABLISHMENT OF

COFFEEPROCESSINGPLANT

Profileoncoffeeroasting,grindingandpackingprojectproposal

Project To Be Implemented: In South West Ethiopia,

OromiaRegion,Jimma town

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TableofContents
SUMMARY...................................................................................................................................................6
1. Generalbackgroundoftheproject.............................................................................................................8
1.1. Background.......................................................................................................................................8
1.2. Objectiveofthe project....................................................................................................................11
1.3. Projectrationale..............................................................................................................................12
1.4. The significanceoftheproject..........................................................................................................14
1.5. ProjectLocation...............................................................................................................................15
2. ProductDescriptionandApplication........................................................................................................17
3. Marketstudyandplant capacity..............................................................................................................19
3.1. Marketstudy...................................................................................................................................19
3.1.1. LocalMarket.............................................................................................................................19
3.2. PastSupplyand present demand.....................................................................................................20
3.2.1. PastSupply...............................................................................................................................20
3.2.2. PresentEffectiveDemand.........................................................................................................22
3.2.3. PricingandDistribution.........................................................................................................25
3.2. PlantCapacityandProductionProgram.............................................................................................26
3.2.1. PlantCapacity...........................................................................................................................26
3.2.2. ProductionProgram..................................................................................................................26
4. Materialsandinputs................................................................................................................................27
4.1. Rawmaterials..................................................................................................................................27
4.2. Utilities............................................................................................................................................28
5. Technologyandengineering...................................................................................................................29
5.1. Technology.....................................................................................................................................29
5.1.1. ProductionProcess........................................................................................................................29
5.2. Engineering.....................................................................................................................................34
5.2.1. MachineryandEquipment....................................................................................................34
5.2.2. Land,BuildingsandCivilWorks...........................................................................................35
5.2.3. Location............................................................................................................................................. 37
5.3. EnvironmentalImpactAssessmentsoftheProject.............................................................................37
5.4. Projectimplementation...................................................................................................................39
6. Humanresource andtrainingrequirement..............................................................................................40

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 6.1. Humanresourcerequirement..........................................................................................................40
6.2. Trainingrequirement.......................................................................................................................41
7. Financialanalysis....................................................................................................................................42
7.1. TotalInitialInvestmentCost..............................................................................................................43
7.2. Productioncost................................................................................................................................44
7.3. Financialevaluation.........................................................................................................................45
7.4. Economicandsocialbenefits............................................................................................................47
8. Financialanalysessupportingtables.......................................................................................................48

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 KEYINFORMATIONHIGHLIGHTSOFTHEPROJECT

PROPOSEDPROJECT EstablishmentOfModernCoffeeProcessingroasting
,grindingandpackingPlant

PROJECTAREA SouthwesternEthiopiaOromiyaRegionalSt
ateJimmatownGinjokebele

LANDREQUIREMENT  5000m2-
forSortingroastinggrindingandPackingfactory

PRODUCTIONCAPACITY 5000ToneperAnnum

FACILITIESWILLBEPROVIDED
 Exporting finest international quality
standardsWashed and Natural /Sun-dried
roasted Coffeeworldwide
 Roasted ,grounded and packed standard
specialtycoffee

MARKET Nationaland International

COSTOFTHE PROJECT 25million

JOBOPPORTUNITY The project will create employment opportunities for

116persons

VISION  Tobeoneof theleadingfinestrosted coffeeexporter

 Tobeinternationallyrecognizedcoffeeexportfirm.
 Createpartnershipswithcoffeeimporters

 To establishmodern coffee processing ,rosting

andgrindingplants injimma city
 exportofavalue-addedproductcoffeeroasting,

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 OBJECTIVES grindingandpacking
 Processing & Exporting Of Ethiopian Arabica
SpecialtyCoffee
 To Be One OfThe Leading Coffee Processors
AndExporters
 createemploymentopportunityforasu
bstantialnumberofpersons

LONGTERMGOALS  Expandcompany’s technology to other food

productsmanufucteringsuchaschocolateandotherfinishedp
roduct

KeystoSuccess  Producethefinestandinnovativequalityproduct
 Creativemarketingandsalesstrategies
 developpositivepartnerships

OURSTRATEGY  GivesthehighestregardstotheWin-Winopportunities
 Benefitingstakeholdersinthecoffeebusiness.
 reputationbasedonhighquality
coffeeandfairprice,Creatingbackwardlinkageswithth
eagriculturalsector

PBP(PAYBACK PERIOD) 5year

ANALYSISRESULT

THEPROJECTIS
TECHNICALLYFEASIBLE,FINANCIALLYASWELLASSOCIALLYANDECONOMICALLYA
CCEPTABLE.HENCE,THEPROJECTISWORTHIMPLEMENTING.

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SUMMARY
Thisprofileenvisagesthe establishment of a plant for the production ofroasted,
grounded and packed coffee with a capacity of5000 tons per
annum.Severalvarietiesofprocessedgreencoffeeusuallyareblendedandroastedtoget
hertoproducethetastes,aromasandflavorspopularwithconsumers.Groundedcoffeeis
consumedbyhotels, bars, cafeterias and
households.Althoughcoffeeisnowgrowninmanycountriesaroundtheworld,Ethiopiar
emainsoneofthechiefplayersintheglobalmarket,byexportingexceptionallyflavorfulg
ourmetcoffeestotheworld.EthiopiaisreportedtobethelargestcoffeeproducerinAfrica
.

the present export demand for locally produced non Decaffeinated roasted
andmilledcoffeeisestimatedat9,395tons.Theexportdemandforlocallyproduced
non decaffeinated roasted and milled coffee is projected to
increasefrom14,768tonsin2020to21,529tonsand31,384tonsbytheyears2025
and2030respectively.

The main raw material for coffee processing plant is pre-cleaned green
coffeewhich is available locally. The product can get its market outlet through
theexistingwholesaleandretailnetworkthatincludesdepartmentstores,merchan
diseshopsandsupermarketsTheestablishmentofsuchplant willhave a foreign
exchange earning effect by exporting its product to the globalmarket.

ThetotalinvestmentcostoftheprojectisestimatedatBirr25million.Fromthetotalinves
tmentcostthe highest share is accounted by fixed
investmentcostfollowedbyinitialworkingcapitalandpreoperationcost.Theprojectisfi
nanciallyviablewithaninternalrateofreturn(IRR)of20.98% and a
netpresentvalue(NPV)ofBirr12.29million,discountedat10%.Theproject
cancreateemploymentfor22persons.

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Theestablishmentofsuchfactorywillhavea foreign exchange saving
andearningeffecttothecountrybysubstitutingthecurrentimportsandexportingits
products to the international market. The project will also create
backwardlinkagewiththeagriculturalsectorandforwardlinkagewiththe hotel
andtourismsectorandalsogeneratesincomefortheGovernmentintermsoftaxrevenue
andpayroll tax.The project will create a conducive environment
fortherapidgrowthofserviceandtradesectorsaroundtheprojectsitewhichinturncreat
eemploymentopportunityforasubstantialnumberofpersons.

To this effect, the owner of the envisioned. who has been living for long time
inthis city, planned to establish modern coffee roasting, grinding and
packingplant for national and international market in Oromiya Regional State,
JimmaCity, Ginjo Kebele. The promoter is very ambitious and committed to
realize
theprojectundertakenthisstudytocheckthemarket,technicalandfinancialfeasibili
ty of this project. Hence, expect to get the necessary support from
thecityadministrationtomaketheprojecttobeoperational.

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1. Generalbackgroundoftheproject

1.1. Background
TheEthiopianeconomyisheavilydependentonagriculture.Thesectorcontributesa
bout48percentofthecountry‘sGDP,whileaccountingfor90per cent of foreign
exchange earnings, 85 per cent of employment and 70
percentoftherawmaterialrequirementsoflocalindustriesEthiopiaisaprominent
global coffee producer as well as consumer. According to the
CentralStatisticalAgencyofEthiopia(2015),thecountryproduced420millionkilog
ramsof coffee beansandconsumedupto about220 million kilograms(IOC, 2016),
that is, more than half of its total production. Ethiopia is
thebirthplaceofcoffee.Theword―coffee‖istakenfromthenameofanadministrative
region,―Kaffa‖, where coffee was discovered and where it growswild. According
to legend, a goat herder named Kaldi noticed how frisky
hisgoatsbecameaftereatingcoffeeberries.HethendecidedtotrysomeEthiopiais
not only the home of coffee but it also possesses 99.8 per cent of
Arabica‘sgenetic diversity, which enables it to produce different coffee types
with a vastrangeofinherentcharacteristicsthatmakethemuniqueanddistinctive.

The Arabica coffee that is produced by other countries is derived from

aboutfour to five gene bases, taken from Ethiopia. The rich genetic resource
poolcould be attributed to the different coffee growing agro-ecological zones
andnaturalfactorssuchasrainfall,shade,altitude,climateandsoil.Coffeegrowsin
almost all the administrative regions of Ethiopia under different
conditionsranging from the semi-savanna climatic condition of the Gambela
plain (500ma.s.l) to the continuously wet forest zone of the South Western
region
(2200ma.s.l).Ethiopia‘svastgeneticresourceismorepreciousthananyother;anexa
mpleisthatArabicais95percentself-pollinatingandin-
breedingasopposedtoRobusta,whichiscross-
pollinating.Moreover,thehugegeneticresource pool is valuable in that it may be
used to meet the need for high-yield,disease-

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resistantandpreferredtraitssuchaslowcaffeineorcaffeine-
freecoffeeHowever,littlehasbeendonetoidentifyandmakeuseofthesevaluable

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resources: much more needs to be done to adequately explore and exploit
theresources.

Coffeehaseconomic,environmentalandsocialsignificanceinEthiopia.Itaccounted for
an average of 51 per cent of the total value of Ethiopia‘s
exportearningsduringtheperiod2000-2005. In 2007, the share of coffee in
theexportincomeofthecountrywas37percent. Despite a drop in sharepercentage, it
is still the leading foreign exchange earner. Coffee is not only
themajorsourceofthecountry‘sexportearningsbutalsothemainproviderofemployme
ntopportunities.Onefourthofthepopulationisengagedincoffeeproduction,transporta
tionandmarketing.Inadditiontotheeconomiccontribution,coffeehas environmental
and social significance. About 45 percent of coffee is produced in forest and
semi-forest areas. Moreover, coffee thatgrows in the backyards of the homes of
small farmers, known as garden coffee,constitutesabout50 per cent of total coffee
production and plantationsgrowingundershadetrees,account for 5 per cent of the
total.
Coffeeproductionandshadetreesarelinkedinthatcoffeehelpstoprotecttheenvironme
ntandconservevaluablegeneticresources.Coffeehassocialandculturalbenefits;itispar
t of Ethiopian tradition and is used in socialinteractionsuchasget-
togetherswithfamilymembers, neighbors;
forcelebrations,mourningandreceivingguests. More than 95 per cent of
thecoffeeinEthiopiaisproducedby smallholder farmers while the
remaindercomesfromlarge-scaleprivateandgovernment-ownedfarms.

Theannualcoffeeproduction,estimatedatbetween300,000-330,000tons.Local
production of coffee also exhibits a substantial growth increasing from225,362
tons in year 2001 to 373,941 in the year 2012, registering an
averageannualgrowthrateof5.44%.Duringtheperiod2000-
2013,themaximumexport of coffee from Ethiopia was 211,981 tons in 2010,
while the minimumwas 89,220 tons in 2001; however during the period under
consideration, onaverage, the country was exporting about 155,785 tons of
coffee per annum.Duringtheperiodunderconsideration(2000-

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2013),exportofcoffeehas

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registered an average annual growth rate of 6.25%.In terms of value, export
ofcoffee has increased from Birr 2.09 billion in 2000 to Birr 11.39 billion in
2013,registering an average annual growth rate of 20.39%.Ethiopian population
isestimatedtobe90+millions,ofwhich coffee sustains the livelihood of
15millionpeople.Coffeeisvitaltothecultureandsocioeconomiclifeofthestate.

There are a number of players involved in the coffee marketing chain.

Theseincludethecoffeeproducers,suppliers,theEthiopianCoffeePurchasingEnter
prise, the Ethiopian Coffee Export Enterprise and private exportersIn2008,the
Ethiopia Commodity Exchange (ECX),a trading center for
Ethiopianagriculturalproductssuchascoffee,maize,navybeans,wheat,andsesame
,was established.In the same year, the government andthe ECX introduced
anewgradinganddistributionsystemforcoffeeinEthiopia.

Most importantly, this forest shelters the gene pools of many important
crops,including coffee (Coffea arabica) and false cardamom (Aframomum
corrorima)[31],inadditiontosupportinglocalforest-
basedlivelihoods,forexample,throughshadecoffee(i.e.,coffeegrownundershadetr
ees)andhoneyproduction [32,33]. Coffee is a dominant export
commodityaccounting for over25% of Ethiopia‘s total foreign currency
earnings and the coffee
productionsectorsupportsthelivelihoodsofover15millionpeopleForestcoffeeeco
systems, i.e., ―forest coffee‖and ―semi-managed forest coffee‖ production
bysmallholders, mostly in south and southwest andto some extent in
southeastEthiopiaaccountforabout45percentofthecountry‘stotalcoffeeproducti
on.

Smallholders‘coffeeproductioninvolvestheuseoflocalknowledgeandtechniques,
which are often relatively biodiversity friendly). Accordingly,
coffeeproductioninthe forest coffee ecosystems, as recently demonstrated
hassloweddeforestationinsouthwestEthiopia[38].Theeconomiccontributionofcoffe
eseemstobeafactormotivatingthegovernmenttofurtherexpand.Themacroeconomic
performanceinthe past seven years has been very positiveandthebroad-
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basedeconomicgrowthisexpectedtocontinueunderGTPII.

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Although the incentive packages that are currently given seem to be
adequatethe government is planning to give additional incentives for the
manufacturingsector,particularlytoexportorientedandagroprocessingprojects

Tothiseffect,theownerplantoinvestonmanufacturingofCOFFEEPROCESSING
industry and committed to developing in south west of Ethiopiajimmatown.

Besides,thegovernmentpoliciesandincentivesfortheprivatesectorinvestmentare
verypromisingthatinitiatethepromotertoengageinestablishingmanufacturingof
COFFEEPROCESSINGindustry

1.2. Objectiveoftheproject

 To establish coffee roasting, grinding and packing plant

fordomesticandinternationalmarket
 Provideanexcellentserviceexperience,anticipatingtheneedsofthecustome
rsanddeliveringthebestservice.
 exportofavalue-addedproductcoffeeroasting,grindingandpacking
 Processing &Exporting OfEthiopian Arabica Specialty Coffee
 ToBeOneOf TheLeadingCoffeeProcessorsAndExporters
 createemploymentopportunityforasubstantialnumberofpersons
 StrategicallypositionEthiopiancoffeeprocessingindustrytobegloballycom
petitive;and
 Complementthenationaldevelopmentagendathroughexportofavalue-
addedproduct.

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1.3. Projectrationale
Aspertheanalysiscarriedout by different institutions on the political,economic,
socio-cultural and technological developments (PEST),
Ethiopiaoffersastablepoliticalandeconomicenvironment as well as
security;exceptionalclimate;almost complete absence of routine
corruption;continuouslyimprovingpublicservicedeliverywhichmakes it
potentially anideal destination for investment. The macro economic performance
in the pastsevenyearshasbeenverypositiveandthebroad-
basedeconomicgrowthisexpectedtocontinueunderGTPII.Althoughtheincentivepack
agesthatarecurrentlygivenseemtobeadequatethegovernmentis planning to
giveadditionalincentivesforthe manufacturing sector, particularly to
exportorientedandagroprocessingprojects.Prioritieswillbegiven to
themanufacturingsectorinsupportprovisionintheareasoflicensing,landandfinanceal
location,trainingandthelike.

The expansion of Universities as well as Technical, Vocational Education

andTraining (TVET) in all parts of the country provides good opportunity in
thesupply of skilled and semi-skilled technical personnel. Health service
provisionand development of infrastructures such as roads, energy and
communicationare also showing a rapid improvement in the country. The
advancement ofscience and technology in the world and the spread of same in
the country willfavorably influence the smooth operation of the envisaged
project.
Moreover,thestrategiclocationofthecountry,whichisneartotheMiddleEastandEu
rope,hasanadvantageininternationaltrade.

As part of the support provided by the government to the agricultural

sector,accessestoproductiveinputs,suchashybridseedandfertilizerhasbeenexpa
nded.ThegovernmenthasalsoestablishedtheEthiopianCommodityExchange
(ECX), which is a marketing institution established for creating
andrunningtheEthiopiancommoditymarketinatransparent,fairandsustainablem
annerthatwouldbenefitallthe3actorsinthevaluechainandthecountryatlarge.Acco

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rdingly,itcanbeconcludedthatEthiopiaisidealfor

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investment.Thecompanyplanstoalterthemarketdynamicsofcoffeebyimproving
roasting and service standards in jimma. It operates a
commercialsizeroastingplantwithannualpotentialproductioncapacityof300tons
.Product and service quality is improved by bringing designs and fabric
patternsfromcoffeegrowingcommunitiesintocoffeebags/caseswhilemaintaining
internationalpackagingstandards.Thiscreatedmarketlinkagesamonghandicraft,
hotelandtourismstakeholders.

jimma zone is the foundation of coffee Arabica and one of the best produce
ofwashedandunwashedcoffee.Moreoveritisfamousinthecountry bysupplying
quality coffee to the export market. Although those of the
factorieswhichproducewashedandunwashedformsaregreatinnumber,none
iscoffee roasting, grinding and packing industry. Therefore, there is no
problem,but plenty of raw coffee supply for intended project from those of
processingindustries.in order to respond to the created environment the jimma
zone isneedofmajor,
basicandfeasiblecoffeeprocessingindustryprojecttobeimplemented.
Accordingly, a thorough assessment of the current status andfuture prospect of
these factors indicates that there is a progressively
growinglocaldemandforvalueaddedcoffeeproducts.

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1.4. Thesignificanceoftheproject
Theenvisagedprojectdeemedtoadd to the economic development of
thenationingeneralandzoneandtowninspecificwithfollowingways:

A. SourceofRevenue
Aspublicpolicyofanynation,thegovernmentcollectsdifferentformsoftaxesfromdiffer
entbusiness organizations and individuals. Among the differentformsoftaxes,
business income taxes, payroll income tax and VAT
arecollectedfromundertakingbusinessactivities.

B. Employmentopportunity
Oneoftheproblemsthatourcountryfacedisunemployment.Therefore,thecurrentobje
ctiveofthegovernmentisworkingontacklingtheproblemofunemploymentandfosteri
ngthedevelopmentprocesseitherthroughcreatingself-
employmentoremploymentinotherorganization.Hence,this project
willhire116individuals

Sourcesofsocialservice

Theprojectwillcreatebackwardlinkageswith the agricultural sector.

Theprojectwillcreateaconduciveenvironmentforthe rapid growth
ofmanufacturingsectors around the project site which in turn
createemploymentopportunityforasubstantialnumberofpersons.

Reasonsfortheexpectedsuccessoftheproject:

• Unwavering commitment of the local investor and detailed

understandingandplanningofthebusiness;

• Highacceptanceandrecognitionof our brand and products within

arelativelyshortperiod;

• Relativelyhighlevelofexpertisein coffee, especially when compared

withlocalinvestors;andSignificant
demandforqualitycoffeeproductsinthelocalmarket.

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1.5. ProjectLocation
Jimma city is found in Oromia regional state at about 358 km away from
AddisAbaba /finfinne city, in the south west direction. Geographically, The city
islocated at 7O 40 ‗Nlatitude And 36 O6‘ E longitude and the total area of land
ofthecitywasestimatedover4,623hectares.Thetownislocatedin―WeinaDega
―zone;thatistosay;itisfoundinthatpartofEthiopia,whichreceivesmoderately
heavy rainfall throughout the year. The mean annual rainfall in thetown is
1450-1800mm.The temperature in the town range of 12.1 C oto
30Cowiththemeandailytemperatureof19.5Co

Topographically, the Jimma area might be divided into escarpment and

alluvialplains.Elevationwithinthetownboundaryrangesfromthelowest1720
m.a.s.l.of the airfield (kitto) to the highest 2010m.a.s.l. of Jiren.As
shownbelowJimmacitygroupedbetween1500-2000melevationsthat cover
0.46%fromconsideredarea.Inyear2004,thetotalpopulationofthecityisestimatedto
reach 144,835. The number of male accounts 51% and the number of
femaleaccounts49%.

Jimmatownisoneoftheoldesttowninthesouthernwesternpartoftheregion and its

strategic location and availability of major infrastructures makesit the main
market centre for coffee and cereal crop productive woredas of
thezoneandsurroundingareassuchasIllubaborzoneoforomiaregionandkeficho
shekicho and bench maji zone of southern region and gambella
region.dairyfarminginthecitieswhicharesmallscaleandmediumscaledairyfarmin
gnowinjimmaareawerepeople‘sdailyactivitiessincethesectorattractmanybusine
ssmenandresidence.UrbanAgricultureinJimmaincludeshorticulture (vegetables
and fruits), livestock like cattle, sheep, goats breedingand equine for transport
purpose; According to Jimma zone Central
StatisticalAuthority,April2007/8Cattle,populationof2,006,467cattle,248049Goa
ts,496512Sheep252685Equineand,3053792Poultryfoundinthecity

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There is an industrial zone in Jimma which was prepared before four years
wasnow partially developed for different manufacturing of building materials
suchas Hollow Concrete blocks. Still there is an open space at the northern part
ofthissite,whichcanbeusedforexpansionofsimilarusesinthe
comingplanningperiod.Becauseofgeographicallocations,thezonehasagreatadva
ntage for accessing the local products to the market and creates
favorableconditionfortheprovisionofthedemandedcommoditiestothecommunit
ies.

The coverage of basic infrastructure facilities are increasing dramatically

inrecent years following free market policy of the Federal Democratic Republic
ofEthiopia‘s(FDRE)ingeneralandRegionalGovernmentofOromiainparticular.so
that The proposed location of dairy processing factorywill bejimmatowns.

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2. ProductDescriptionandApplication
Coffee is a common name for any of a genus of trees of the madder family,
andalsofortheirseeds(beans)andforthebeveragebrewedfromthem.TheArabicas
andRubastasarethetwomajortypesofcommercialcoffee.Chemicals extracted
from expertly processed and roasted coffee by hot waterclassified as non-
volatile are caffeine, trigonelline, chlorogenic acid,
phenolicacids,aminoacids,aldehydes,ketones,esters,amines,andmercaptanes.Un
doubtedly the popularity of this beverage is, at least to some extent, relatedto
its stimulant effects. Average caffeine contents per cup of brewed coffee is110
mg. Caffeine is a mild psycho - stimulant that has been called the
mostwidelyusedpsychoactivesubstanceonearth.

Several varieties of processed green coffee usually are blended and

roastedtogether to produce the tastes, aromas and flavors popular with
consumers.Groundedcoffeeisconsumedbyhotels,bars,cafeteriasandhouseholds.
Roastedandpackedcoffeeisaresourcebasedprojectthatwillsubstituteimport and
have an export potential. Green Decaffeinated Coffee The caffeine isextracted
and removed while the coffee is in green raw form by using waterand/or
chemicals to reduce the caffeine content to as low as 0.1% to 0.2%.Ethiopia is
ranked fifth with an average share of 4%. Global total export ofcoffee (in all
forms), during the period 2004--2013, has increased from 5.7million tons
valued at 9.17 billion USD to 8.18 million tons valued at 28.61billion USD,
registering an average annual growth rate of about 4.15% and15.27% in terms
of volume and value, respectively. During the period 2004--2013, Brazil
followed by Vietnam, Colombia and Germany were the
leadingexportersofcoffee

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RoastedCoffee

Green Coffee is roasted at by action of heat (roasting) to develop

characteristicflavorandaromaandpackedandsuppliedtomarket.

RoastedGroundCoffee

TheRoastedGroundCoffeeproductispreparedbygrindingandpackingroasted
coffee for house hold consumption as well as for commercial
centreslikehotelsandrestaurants.

LiquidCoffeeExtract

The Liquid Coffee Concentrate extracted from regular or decaffeinated coffee

forhouseholdconsumptionorindustrialconsumptionpurpose.

InstantCoffee

InstantCoffeeis producedintwo forms(spraydriedagglomeratedand freezedried)basedon thetype

of production processes employed. The instant coffee product dissolves instantly in
hotwaterduringconsumption.

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3. Marketstudyandplantcapacity

3.1. Marketstudy
Theconsumersofprocessedcoffeeproductsarelocalcoffeeconsumers(mainlytheurba
ndwellers),importers,andfoodandbeverageindustriesoperatinginthecountryandab
road(chocolate,candies,confectioneries).Ethiopiancoffeeisexportedtoover50count
rieseveryyear.ThelargestimportercountryofEthiopiancoffeeisGermany(about30%
ofthetotalEthiopiancoffeeexport)followedbySaudiArabia(about15%),USA(6-
10%)andBelgium, Japan,France,Italy,andSudan(4-
6%each).Over80%ofthetotalvolumeofcoffeeisexportedtothese8countries .

3.1.1.LocalMarket
Overview ofthePerformanceoftheLocalCoffeeSubSector

Duringtheperiod2004—
2013,thelandareacroppedbycoffeeshowsasignificantgrowth;increasingfrom232
,439hectareto528,751hectares,registeringanaverageannualgrowthrateof10.17
%.Localproductionofcoffeealsoexhibitsasubstantialgrowthincreasingfrom225,3
62tonsinyear2001to373,941intheyear2012,registeringanaverageannualgrowt
hrateof5.44%.Duringtheperiod2000-
2013,themaximumexportofcoffeefromEthiopia was 211,981 tons in 2010,
while the minimum was 89,220 tons in2001; however during the period under
consideration, on average, the
countrywasexportingabout155,785tonsofcoffeeperannum.

Duringtheperiodunderconsideration(2000-2013),exportofcoffee hasregistered an
average annual growth rate of 6.25%.In terms of value, export ofcoffee has
increased from Birr 2.09 billion in 2000 to Birr 11.39 billion in
2013,registeringanaverageannual growth rate of 20.39%. Although coffee is
stillthedominantforeignexchange earner to the Ethiopian economy,
consideringtheuniquenaturalendowmentandthe special varieties of coffee
produced inthecountry,whicharehighly valued by importing countries, it can
beconcludedthatthecountryisnotbenefitingfromitscoffeeresourcepotential.

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Forexample,duringtheperiod2009-
2013,theaverageunitvalueofcoffeeexportedbySwitzerlandishigherbynearly10folda
scomparedtotheaverageunitvalueofcoffeeexported from Ethiopia. In fact, West
European countriesarenotproducersofcoffeebuttheyhavespecialized in import of
the
greencoffeefromdevelopingcountrieswheretheresourceisavailableandthenprocessi
ng the product (value adding) and re-exporting. Accordingly, in order
tofullyexploitthecountry‗scoffeeresourcepotential,developinglocal
valueadditioncapabilityisindispensable.

3.2. PastSupplyandpresentdemand
3.2.1. PastSupply
Thelocaldemandforroastedandmilledcoffeeissuppliedthrough
localproductionandimport.Ontheotherhandthelocalmarketfor
decaffeinatedcoffee;extractsandconcentratesof coffee and soluble or instant
coffee islargely met through import. The finding on the trend in the past supply of
theproductsunderconsiderationissummarizedbelow

1.DecaffeinatedGreenCoffee

Ethiopiaproducesasmallamountofdecaffeinatedgreencoffee;whichisexclusivelytarg
etedatexportmarket.Ontheotherhand,thecountryimportsinsignificantamount of the
product. During the period 2002—2007,
theaverageannualimportwasabout1.47tonsvaluedatBirr 29,997.
However,duringtherecentsixyears(2008--
2013),importofdecaffeinatedgreencoffeehasincreasedto7.15tonsinaverageperannu
m;valuedatBirr794,335.

2) RoastedandMilledCoffee

Roasted and Milled Coffee not Decaffeinated: The apparent consumption

ortotal supply of not decaffeinated, roasted and milled coffee consists of
localproduction plus import minus export. Local production of not
decaffeinated,roasted and milled coffee, excluding year 2006, which is
2
exceptionally high,exhibitstwodistincttrends.During2000--
2008localproduction,exceptfor

2
years 2003 and 2004, has shown a year to year growth increasing from only
28tons in 2000 to 2,767 tons in 2008. Beginning from 2009, local
productionexhibitsadecliningtrend.However,thevolumeoflocalproductioninthe
recent seven years (2007--2013) is much higher than the volume of
productionduringtheinitialyears(2000-2005).Duringtheperiod2000--
2005,theaverageannuallocalproductionwas237tons,whichhasincreasedtoanave
rageannualof1,746tonsduringtheperiod2007--
2013.Hence,betweenthetwoperiodslocalproductionhasincreasedbymorethanse
venfolds.Import of not decaffeinated, roasted and milled coffee fluctuates from
year toyearwithoutanynoticeabletrend.Importrangesfrom1.78tonsin2000to
94.45tonsin2007.Nevertheless,when average import of the product
duringtheinitialsevenyears(2000--2006)iscomparedwith

the average import of the subsequently seven years a growth in import can
benoticed. The average annual import during the initial period was 5.43
tons,whichhasincreasedtoanannualaverageof40.13tonsduringtheperiod2007--
2013. Since the great majority of the local demand for not
decaffeinated,roastedandmilledcoffeeismetthroughlocalproduction(accounting
onaverage for 98.93% of the total supply during the period 2000--2013,
totalsupply or apparent consumption of the product exhibits similar trend to
localproduction, i.e. an increasing anddecreasing trend during the periods
2000--2008 and 2009--2013, respectively, in terms of year to year growth but
yet amuch higher volume of supply during the recent period as compared to
theinitial period.Decaffeinated, Roasted and Milled Coffee:The country imports
asmall quantity of decaffeinated, roasted and milled coffee. During the
period2000—2013, the maximum import was 28.29 tons in 2010 valued at Birr
1.83million, while the minimum was 0.01 tons 6 in 2004 valued at Birr 802.
Duringtheperiod2000--
2013onaverage,thecountryhasimported4.03tonsofdecaffeinated,roastedandmil
ledcoffeevaluedatBirr242,555.However,ifonly the recent four years (2010--
2013) are considered the average annualimportincreasedto10.06tons.

2
3) InstantCoffee

Duringtheperiod2000--
2013onaverage,thecountryhasimported6.17tonsofinstantcoffeevaluedatBirr324,5
73 annually. Import of the
productfluctuatesfromyeartoyear,however,ageneralgrowthcanbeobserved.Forexa
mple, if only the recent five years (2009--2013) are considered, the averageannual
import will increases to 10.68 tons and Birr 744,918 in terms of
volumeandvalue,respectively.

TrendinFactorsthatAffecttheLocalDemandfortheProductsunderConsideratio
n

 Thevariablesthatareessentialindeterminingthemagnitudeandtrendofdeman
dfortheproductunderconsiderationare:
 Populationsize,populationgrowthrateandurbanization
 Economicgrowthofthecountryingeneralandgrowth in
disposableincomeofthepopulation;andNumberoftouristvisitingthecountryde
velopmentlevelofhotelindustry

Accordingly,athoroughassessmentofthecurrentstatusandfutureprospectof
these factors indicates that there is a progressively growing local demand
forvalueaddedcoffeeproducts.

3.2.2. PresentEffectiveDemand
Urbanization and income are found to be the major determinants of the
futuredemand for value added coffee products. Hence, a growth rate of 5%,
which isslightly higher than the urban population growth rate and much lower
thanincomegrowthrate,istakentoforecastthefuturedemand.Thedomesticdeman
d for roasted coffee depends on level of income and population growthrates.
Moreover, the product‘s superior convenience will have a positive
effectonthelevelofdemand.Sincetheproductishigh valued type,
majorconsumersareexpectedtobeurbandwellersandthoseprosperousamongthe
2
rural society. However, it has been assumed for this purpose that the
urbanresidentswillbemajortargetconsumersoftheproduct.AccordingtoCSA(201
1)theurbanpopulationisgrowingatmorethan4%perannum.Thecountry‘s
economy is growing at 11%, the population and income effects arealso similar.
With such understanding 4% is used to project demand growth.Domestic
production is expected to remain at year 2012 level (2,153 tons).Export
isforecastedtogrowby itsaverage growthrate ofthelastfouryears

DEMANDPROJECTIONFORROASTEDCOFFEE(TONS)

a) TrendinGlobalImportandExport

Duringtheperiod2004—2013,globalexportofroastedandmilledcoffeeexhibits a
consistent year to year growth, increasing from 473,861 tons
valuedatUSD2billionto909,072tonsvaluedatUSD9.26billion,registeringan

2
averageannualgrowthrateof7.60%and19.25%intermsofvolume andvalue,
respectively. From the total global export of roasted and milled coffee,
onaverage, the great majority, i.e. 95.06% and 93.37% in terms of volume
andvalue,respectivelyisaccountedbynon-decaffeinatedroastedandmilledcoffee.

b) PresentandProjectedGlobalDemand

The present global demand for non-decaffeinated roasted and milled coffee
isestimated at 939,462 tons. The global demand for non-decaffeinated
roastedand milled coffee is projected to increase from 1.47 million tons in 2020
to 2.15milliontonsand3.13milliontonsbytheyears2025and2030,respectively.

c) EstimatedMarketShareforLocallyProducedValueAddedCoffeeProducts

the present export demand for locally produced non Decaffeinated roasted
andmilledcoffeeisestimatedat9,395tons.Theexportdemandforlocallyproduced
non decaffeinated roasted and milled coffee is projected to
increasefrom14,768tonsin2020to21,529tonsand31,384tonsbytheyears2025
and2030respectively.

d) TotalProjectedDemand(LocalPlusExport)

Thetotaldemandforlocallyproducednondecaffeinated roasted and milledcoffee is

projected toincrease from 13,256 tons in 2015 to 18,758 tons,
26,621tonsand37,883tonsbytheyears2020,2025and2030,respectively

2
MarketingMix

Product quality is one of the basic and most important marketing mixes
thataffect the success of a product. The quality of value added coffee products
ismainly dependent on the quality of the raw material used. Accordingly, in
orderto insure the quality of the incoming raw material the envisaged project
needstosetupaneffectiverawmaterialqualitycontrolmechanism.

3.2.3. PricingandDistribution
The market price for export quality roasted coffee on average is Birr 190
/kg.Hence,allowinga20%marginfordistributorsandretailers,sellingpriceforthe
project is proposed to be Birr 158 /kg. As to its distribution, it can berealized
through whole sale networks and retail outlets such as supermarketsandshops.

3
3.2. PlantCapacityandProductionProgram

3.2.1. PlantCapacity
Basedontheoutcomeofthemarketstudyandconsidering the minimumeconomic
scale ofproduction, the envisaged plant willhave a capacity of
5000tonsofroasted,groundandpackedcoffeeperannum.Thiscapacitywill beattained
by workinga single shift of 8 hours per day and 300 working days peryear.

3.2.2. ProductionProgram
The Proposed production program the plant is to start production at 80% of
theproductionprogramduringthefirstyearof production, increase it to
90%duringthesecondyearandfinallyreach100%atthethirdyearofoperationofthepla
ntWithanassumptionthatenoughtimeduringthe initialstagewill berequired for
market penetration and technical skill development, are shown inTable

ANNUALPRODUCTIONPROGRAM

3
4. Materialsandinputs

4.1. Rawmaterials
Theprincipalrawmaterialrequiredfor the envisaged plant is clean greencoffee.
The plant receives pre-cleaned green coffee from cooperatives of
primaryproducers.Thegreen coffee beans, upon roasting process, lose weight due
toevaporation of water. The extreme limits of the weight loss termed as ―a loss
inthefire‖arebetween14and23%oftheinitialweightofcoffeebeans.Eliminationofthes
ilver skin of coffee beans which amounts from 0.2%
to0.4%andthereleaseofcertainvolatileelementsalsooccursduringroasting.Takingthe
abovementioned weight loss into account, the annual
requirementforgreencoffeeat100percentcapacityutilizationrateisestimatedtobe10
0tons+(0.22x100tons)=122tons.Toattaintheoptimumpriceandtasteforthegroundco
ffee,differenttypesofcoffeefromdifferentareaswillbemixed.Thepre-
cleanedcoffeeisprocessedintovalueaddedproductstobeexportedandconsumedlocall
yTheauxiliary materials required by the plant
arechemicalsusedforcoffeedecaffeinationprocessandpackagingmaterials.Theotheri
nputsoftheplantareelectricity,waterandlubricantoils.hepackingmaterialstobeusedb
y the envisaged plant are paper bag, corrugated paperboxwith carton panel,
and gumming paper. All these auxiliary materials canbelocallyavailable.

Theproposedpackagesizesofprintedpaperbagforpackingofroastedandground
coffee are 500 gm, 1,000 gmand 1,500 gmwhich are planned toconstitute
30%,60%and10%ofthe total roasted and ground
coffee,respectively.Theannualrequirementofthe envisaged plant for raw
andauxiliarymaterialsatfullcapacityoperation and the corresponding
costestimatesaregiveninTable4.1.

3
ANNUALRAWAND AUXILIARYMATERIALSREQUIREMENTANDCOST

4.2. Utilities
Electricpowerandwateraretheonlypowerandutilitiesrequiredfortheenvisaged
plant. The annual requirement for power and utilities at full
capacityproductionoftheplantandthetotalestimatedcostsareshowninTable4.2.

ANNUALUTILITIESREQUIREMENTANDESTIMATEDCOST

3
5. Technologyandengineering

5.1. Technology

5.1.1. ProductionProcess
Themainprocessingstepsinthemanufactureofroastedgroundcoffeeareblending,
roasting, grinding and packing. Green coffee is cleaned of
string,lint,dust,hullsandotherforeign matter. Coffee processing involves
threedistinct operations, viz roasting, grinding and packing. Clean
coffee,prior to roasting is blended in desired proportions. The aromatic
qualitiesofcoffee only becomeapparentoncethebeans havebeenexposedto
hightemperaturesduring pyrolysis or roasting.Expertsplacetheroasting
zonebetween 180o C and 240oC the optimum temperature being
between210oC and 230 oC. Above this temperature, over-roasting begins. In
general,four principal groups of reactions occur during roasting:
dehydration(depriveofmoisture),hydrolysis(breaking down of water molecules
inhydrogenandoxygenelements),desmolysisand catalysis (for aiding
thespeedingupofchemicalprocess).

The roasting processnormallylasts forbetween12and 15 minutes. In

slowroasting techniques,it requiresabout 25 minutes. Whileroasting
givescoffee its tasteandaroma,it alsochanges the beanincertain ways. Thebeans
lose weight due to evaporation of waterfrom thegreen coffee. About0.2-
0.4percentsilverskinisalso eliminated due toroasting. Roastinginduces
theendospermto increasingvolume duetothe
formationandexpansionofgasbetween180oC and220oC.Thisismanifested
inavolumetricincreaseofabout50to 80 percent, the
extremesbeingbetween30and 100
percent.Thebeanbecomesporousandcrumbleswhenpressureis applied.The
mineralsin coffeedonot changenoticeablyduringroasting
,buttheirrelativecontentincreases when the water
andvolatileorganiccomponentsdisappear.

3
When the desired colour is reached, the coffee is discharged into
thecoolingbinwhereitiscooleduptoroomtemperature.Themajorpost-roasting
operations comprise sorting, coating or glazing, blending,
packingandbeveragepreparing.Theroastedcoffeeissometimessorted to
eliminatebeans that are pale (too light) or charred (too dark). Coffee beans are
blendedafterroastingifthereistoogreatavariationintype.Roastedcoffeesrapidlyloset
heirflavorand aroma. In order to avoid this, sufficiently airtightpackaging should
be used which can preserve the qualities of the coffeefora longer period of
time. Additional operations associated with processinggreencoffeebeansinclude
decaffeination and instant (soluble) coffeeproduction.Decaffeinationis the process
of extracting caffeine from greencoffeebeanspriortoroasting.

ThemostcommondecaffeinationprocessusedintheUnitedStatesissupercritical
carbon dioxide (CO2) extraction. In this process, moistened
greencoffeebeansarecontactedwithlargequantitiesofsupercriticalCO2(CO2main
tainedatapressureofabout4,000poundspersquareinchandtemperatures
between 90° and 100°C [194° and 212°F]), which removes about97 percent of
the caffeine from the beans. The caffeine is then recovered
fromtheCO2,typicallyusinganactivatedcarbonadsorptionsystem.Anothercommo
nlyusedmethodissolventextraction,typicallyusingoil(extractedfromroasted
coffee) or ethyl acetate as a solvent. In this process, solvent is added
tomoistened green coffee beans to extract most of the caffeine from the
beans.Afterthebeansareremovedfromthesolvent,theyaresteam-
strippedtoremove any residual solvent. The caffeine is then recovered from the
solvent,and the solvent is re-used. Water extraction is also used for
decaffeination,
butlittleinformationonthisprocessisavailable.Decaffeinatedcoffee

Beans have a residual caffeine content of about 0.1 percent on a dry basis.
Notallfacilitieshavedecaffeinationoperations,anddecaffeinatedgreencoffeebean
sarepurchasedbymanyfacilitiesthatproducedecaffeinatedcoffee.

3
Roasting:Coffee from different varieties or sources is usually blended
beforeorafterroastinginordertoachievegoodtastecoffeeaswellaslowcostproduction.
Roasting byhot combustiongasesin roasting cylinders requires 8-
15minutes.Thebeanchargeabsorbsheatatafairlyuniformrateandmostmoistureisrem
ovedduringthefirsttwo-thirdsof this period. As
thetemperatureofthecoffeeincreasesrapidlyduring the last few minutes,
thebeansswellandunfoldwithanoticeablecrackingsound,like that of
poppingcorn,indicatingareaction change from endothermic to exothermic. This
stageisknownasdevelopmentoftheroast.Thefinalbeantemperature,200-
220ºc,isdeterminedbytheblend,variety,andflavordevelopmentdesire.Awaterorairq
uenchterminatestheroastingreaction.Most, but not all, of any
addedwateristhenevaporated.Thebeantemperature,correlated to the color
ofgroundcoffeemeasuredby a photometric reflectance instrument,
determinesthe quench endpoint of a roast. At the final bean temperature, the firing
shutsdown automatically, followed by water spraying for a timed period and
finally,dischargeofthecoffee.

Air must be circulated through the beans to remove excess heat before
thefinished and quenched roasted coffee is conveyed to storage
bins.Residualforeign matter such as stones and tramp iron, which may have
passed throughthe initial green coffee cleaning operation, must be removed
before grinding.This is accomplished by an air lift adjusted to such a high
velocity that theroasted coffee beans are carried over into bins above the
grinders, and heavierimpurities left behind. The coffee beans flow by gravity to
mills where they aregroundtothedesiredparticlesize.

3
Grinding: Roastedcoffeebeansaregroundtoimprovetheextractionefficiency
in the preparation of the beverage. Particle size distributions rangingfrom
about 1100µm average (very coarse) to about 500µm average (very fine)are
tailored by the manufacturer to the various kinds of coffee makers used
inhouseholds, hotels, restaurants and institutions. Coffee is ground in mills
thatuse multiple steel cutting rolls to produce the most desirable uniform
particlesize distribution. After passing through cracking rolls, the broken beans
are fedbetween two or more rolls, one of which is cut or scored longitudinally,
theother, circumferentially. The paired rolls operate at differential speeds to
cut,ratherthancrush, thecoffeeparticles. A secondpairof more finely
scoredrolls, installed below the main grinding rolls and running at higher
speeds, isusedforfinergrinds.

Packaging:- After roasting and grinding, the coffee is conveyed, usually

bygravity, to weighing and filling machines that achieve the proper fill by
tappingor vibrating. The ground coffee is vacuum packed in flexible paper bag
andplaced in a paperboard carton that helps shape the bag into a hard brick
formduring the vacuum process. The carton also protects the package from
physicaldamage during handling and transportation. This type of package
provides abarriertomoistureandoxygen.

3
Typicalcoffeeroastingoperation

3
5.2. Engineering

5.2.1. MachineryandEquipment
The major technology and machinery required for the envisaged plant is
coffeepre-cleaning and storage, coffee roasting and grinding, coffee extraction
andinstantcoffeeplantandutilityequipment.TheTheplantmachineryandequipme
nt required for the envisaged plant comprises coffee roaster, mixer,grinder, and
automatic packing machine, and screw and goose type
conveyor.Listofmachineryandequipmenttobeacquiredfortheprojectandtheesti
matedcostsaregiveninTable5.1.

LISTOFMACHINERYANDEQUIPMENTANDESTIMATEDCOST(SETS)

3
5.2.2. Land,BuildingsandCivilWorks
The total size of the land required for the processing plant is determined
afterthe arrangement of all the building blocks & facilities providing enough
spacebetweenthem,spaceforcirculation/vehicular&humans,spaceforlandscapin
gandgardening,spaceforloadingunloading,disposaletc.Accordingly, the land
requirement of the project is estimated to be 5000 m2.The total areaofland
required for the envisaged project is5000 m2. Theconstruction cost of
buildings and civil works at a rate of Birr 4,500 per
squaremeterisestimatedatBirr12.25million.

AccordingtotheFederalLegislationontheLeaseHoldingofUrbanLand(ProclamationN
o721/2004)inprinciple,urbanlandpermitby lease is
onauctionornegotiationbasis,however,thetimeandconditionofapplyingtheproclama
tionshall be determined by the concerned regional or
citygovernmentdependingonthelevelofdevelopment.Thelegislationhasalsosetthe
maximum on lease period and the payment of lease prices. The lease
periodrangesfrom99yearsforeducation,culturalresearchhealth, sport, NGO
,religiousandresidentialareato80yearsforindustryand 70 years for tradewhile
the lease payment period ranges from 10 years to 60 years based on
thetownsgradeandtypeofinvestment.

Moreover,advancepaymentofleasebasedon the type of investment rangesfrom

5% to 10%.The lease price is payable after the grace period annually.
Forthosethatpaytheentireamountoftheleasewillreceive0.5%discountfromthe total
lease value and those that pay in installments will be charged interestbased on the
prevailing interest rate of banks. Moreover, based on the type
ofinvestment,twotosevenyearsgraceperiodshallalsobeprovided.However,theFeder
alLegislationontheLeaseHoldingofUrbanLandapartfromsettingthemaximumhascon
ferredonregional and city governments the power
toissueregulationsontheexacttermsbasedonthedevelopmentlevel of
eachregion.theCity‘sLandAdministrationandDevelopmentAuthorityisdirectlyrespo
nsibleindealingwithmattersconcerningland.However,regardingthe

4
manufacturingsector,industrialzonepreparationisoneofthestrategicinterventionme
asuresadoptedbytheCityAdministration.CityAdministrationhas recently adopted a
new land lease floor price for plots in the city. The
newpriceswillbeusedasabenchmarkforplotsthataregoingtobeauctionedbythe city
government or transferred under the new ―Urban Lands Lease
HoldingProclamation.‖

The new regulation classified the city into three zones. The first Zone is
CentralMarketDistrictZone,whichisclassifiedinfivelevelsandthefloorlandleaseprice
rangesfromBirr1,686toBirr894perm2

. TherateforCentralMarketDistrictZone will be applicable in most areas

ofthecitythatareconsideredtobemainbusinessareasthatentertainhighlevelofbusines
sactivities

INCENTIVESFORLEASEPAYMENTOFINDUSTRIALPROJECTS

Forthepurposeofthisprojectprofiletheaveragei.e.fiveyearsgraceperiod,28years
payment completion period and 10% down payment is used. The landlease
period for industry is 60 years. Accordingly, the total land lease cost at
arateofBirr266perm2

isestimatedatBirr239,400ofwhich10%orBirr23,940willbepaidinadvance. The
remaining Birr 215,460 will be paid in equal installments with
in28yearsi.e.Birr7,695annually.

4
5.2.3. Location
LocationoftheenvisagedIntegrated Coffee Processing Plant is selected
basedonatwostagelocationandsiteselectionprocedures.Thefirststageinvolvedidenti
fyingpotentialprojectlocations,andprioritizingand selection ofappropriate one
based on critical project selection criteria. The project
locationdeterminingfactorsconsideredinthestudyaresupplyofrawmaterials
andinputs,accesstomarket, availability of skilled and unskilled
labor,infrastructuresuch as road, electricity and telephone line, availabilities
ofsocialamenities.ProjectwillBeImplementedInSouthWestEthiopia,OromiaRegion,J
imma Town in Ginjo kebelefor establishment of the integrated
coffeeprocessingplantproject.

5.3. EnvironmentalImpactAssessmentsoftheProject
Theprocessingindustries exist in our environment and are the
maingeneratorsofwastes.Sincetheexistingenvironmentwithinwhichtheyoperateisth
eonlyonewehave,andsharedbyboththeconsumers,andoperatorsofothersectorsofthe
economy,thereistheneedtherefore,toensurethepreservationoftheenvironmentinas
natural and as ecologically balanced
astateaspossiblefortheuseofall.Thismustandshouldbemadetobethemotivating
factor during the design, construction and operation of allindustrial set up.
Industrial waste is a major source of environmental
pollution.EnvironmentalAuditingisamanagementtool that systematically,
periodicallyandobjectivelyreviewsperformanceofexistingprojects,organizations,ma
nagementandequipmentwiththeaimtosafeguardtheenvironmentEnvironmentalma
nagementinvolvestheimplementationofenvironmental protection and mitigation
measures and monitoring ofsignificantenvironmentalimpacts.

Environmentalprotectionmeasuresaretakento(i)mitigateenvironmentalimpacts,
(ii)providein-kindcompensationforlostenvironmentalresources,or
(iii)enhanceenvironmental resources. These measures are usually set out inan
EMP, which covers all phases of the project and outlines mitigation and

4
othermeasuresthatwillbeundertaken to ensure compliance
withenvironmentalregulationsandreduceoreliminate adverse impacts. The
EMPwillalsocoveraproposalforrecommendingtheproposedprojecttousegoodsandp
roductsthatareenvironmentallyfriendlyAmajorconcernoftheRepublicofRwandaissu
stainableeconomicdevelopment.TherehasbeenaconcThegovernment in recognition
of the need to protect the environment from
adverseimpactofdevelopmentalactivitiesrequirestheconductofEIAofprojectsthatar
elikelytohavesignificanteffectontheenvironmentbeforeimplementation.The
development of EIA guidelines is therefore a response to Government andpublic
concern for improvement in project management toensure a clean
andhealthyenvironment.exertedefforttoimprovethequalityoftheenvironmentanden
hanceeconomicwell-beingEIAisatoolfordecision-
makerstoidentifypotentialenvironmentalimpactsofproposedprojects,toevaluatealt
ernativeapproaches,andtodesignandincorporateappropriateprevention,mitigation,
managementand monitoring measures. For Agro-processing projects
factorslikethecategoryofwaste,thesizeofthepopulationtobeservedbytheprojectorim
pactedbytheprojectandprojectlocationarethecritical
informationrequiredtodeterminewhetheranEIAisnecessary.

biodegradableandrecyclablepackagingmaterialsforitscoffeeproducts.
Thepapercupsandcoffeeboxesaremadeof recyclable carton, and the jute
sacksandpalletsusedinbean storage are reused. We use only
biodegradablecleaningagentsindisinfectingourcoffeemachinesandstations.Our
coffeeproductdistribution,especiallytransport and logistics, is programmed
toachieveefficiencyanduseoflimitedresources.tisimportant to
seeenvironmentalassessmentaspartof the overall project planning
andassessmentprocess.Thefullintegrationofenvironmentalassessmentwitheconomi
c,financial,technical, and social aspects and will help ensure
allaspectsofaprojectareassessed,andincreasethelikelihood of it
beingsustainableandabletocontributetotheoverallsustainabledevelopment

4
5.4. Projectimplementation
Theproject‘simplementationisexpected to take 24 months. The
majoractivitiesincludeBankloanprocessingifany,constructionof the
building,cleaningtheareaaroundthebuilding,Procurementofequipmentsandstartren
dering services. The time schedule for the above matured major activities
ispresentedbelow:

Table:projectImplementationschedule

SN Activities Date

1 Landprocessing February,2020

2 approval March,2020

3 SiteDevelopment April–May,2020

4 Buildingandconstructionwork June-November2020

5 Preparationforservice December,2021

6 Serviceexecution December,2021

4
6. Humanresourceandtrainingrequirement

6.1. Humanresourcerequirement
Theorganizationalstructureoftheenvisaged plant is constructed
consideringtheextentoftheindustry.Theplantstructurefollows the
functionalorganizationalstructureapproachtoachieveoperationalefficiencieswithin
agroup.Theplanthasfourfunctionaldepartments and two services.
Thefunctionaldepartmentsarenamely:productionandtechniquedepartments,comm
ercialdepartment,financedepartmentandhumanresourceandadministration
departments. The two services are Planning and IT services
andInternalAuditservice.Thecoffee roasting, grinding and packing plant
willcreatejobopportunitiesfor116persons.Theprojectwillhave116employees.Thehu
manresource requirement and the estimated annual labor
cost,includingfringebenefits,aregiveninTable6.1

4
 HUMANRESOURCEREQUIREMENTANDLABORCOST

6.2. Trainingrequirement
The quality controller, production supervisor, and 3 operators should be
givenon-the-job Training for duration of two weeks by the advanced expert of
themachinerysupplier.ThetotaltrainingcostisestimatedatBirr140,000.

4
7. Financialanalysis
The financial analysis of the roasted, grounded and packed coffee project
isbasedonthedatanPresentedinthepreviouschaptersandthefollowingassumptio
ns:-

Constructionperiod 1year

Sourceoffinance 30%equity

Taxholidays 3years

Bankinterest 10%

Discountcashflow 10%

Accountsreceivable 30days

Rawmateriallocal 30days

Rawmaterialimported 120days

Workinprogress 1day

Finishedproducts 30days

Cashinhand 5days

Accountspayable 30days

Repairandmaintenance 5%ofmachinerycost

4
7.1. TotalInitialInvestmentCost
ThetotalinvestmentcostoftheprojectincludingworkingcapitalisestimatedatBirr25m
illion(SeeTable7.1).Fromthetotal investment cost the
highestshare(Birr5.24millionor51.77%)isaccountedby fixed investment
costfollowedbyinitialworkingcapital(Birr3.87millionor 38.23%) and
preoperationcost(Birr1.01million or 10.01%). From the total investment
costBirr818.40thousandor8.07%isrequiredinforeigncurrency.#

Table7.1.InitialInvestmentCost(‘000Birr)
Sr. Local Total
No. CostItems Cost Cost
1 Fixedinvestment
1.1 LandLease 23.94 23.94
1.1 Buildingandcivilwork 5,000.00 5,000.00
1.3 Machineryandequipment 9,000.00 9,000.00
1.4 Vehicles 4,500.00 4,500.00
1.5 Officefurnitureandequip 450.00 450
Sub-total 18,950 18,950
2 Preoperating cost*
2.1 Preoperatingcost 451.15 451.15
Sub-total 19,401.15 19,401.15

3 Workingcapital** 5,598.85 5,598.85

GrandTotal 25,000,000 23,000,000

* N.BPre operatingcost include project implementation cost such as installation,

startup,commissioning, project engineering, project management etc. and capitalized interest
duringconstruction.

4
7.2. Productioncost
The annual production cost at full operation capacity is estimated at Birr
16.55million (see Table 7.2).The cost of raw material account for 86.64% of
theproductioncost.TheotherMajorcomponentsoftheproductioncostaredeprecia
tion, financial cost and marketing and distribution, which account for4.29%,
3.85% and 1.81% respectively. The remaining 3.41 % is the share oflabor,
utility, repair and maintenance, labor overhead and administration
cost.FordetailproductioncostseeAppendix7.A.2.
Table7.2
ANNUAL PRODUCTIONCOSTATFULLCAPACITY(yearthree)

4
7.3. Financialevaluation
1. Profitability
Based on the projected profit and loss statement, the project will generate
aprofit through out its operation life. Annual net profit after tax ranges
fromBirr 1.07 million to Birr 1.87 million during the life of the project.
Moreover,attheendoftheprojectlifetheaccumulatednetcashflowamountstoBi
rr
35.60million.ForprofitandlossstatementandcashflowprojectionseeAppendix7.A.
3and7.A.4,respectively.
2. Ratios
Infinancialanalysisfinancialratiosandefficiencyratiosareusedas anindex or
yardstick for evaluating the financial position of a firm.Using theyear-end
balance sheet figures and other relevant data, the most importantratios such
as return on sales which is computed by dividing net income byrevenue,
return on assets (operating income divided by assets), return onequity (net
profit divided by equity) and return on total investment (netprofit plus
interest divided by total investment) has been carried out
overtheperiodoftheprojectlifeandalltheresultsarefoundtobesatisfactory.
3. Break-evenAnalysis
The break-even analysis establishes a relationship between operation
costsandrevenues.Itindicatesthelevelatwhichcostsandrevenueareinequilibri
um. To this end, the break-even point for capacity utilization
andsalesvalueestimatedbyusingincomestatementprojection
arecomputedasfollowed.
Break Even Sales Value=Fixed Cost + Financial Cost=Birr5,885,476
VariableMarginratio(%)
BreakEvenCapacityutilization = BreakevenSalesValueX100=32%
Salesrevenue

5
 4. Pay-backPeriod
Thepay-backperiod,alsocalledpay–
offperiodisdefinedastheperiodrequiredforrecoveringtheoriginalinvestmentoutl
aythroughtheaccumulatednet cash flows earned by the project. Accordingly,
based on the projected cashflow it is estimated that the project‘s initial
investment will be fully recoveredwithin5years.

5. InternalRateofReturn

The internal rate of return (IRR) is the annualized effective compounded

returnratethatcanbe earned on the invested capital, i.e., the yield on
theinvestment.Putanotherway,the internal rate of return for an investment
isthe discount rate that makes the net present value ofthe investment's
incomestreamtotaltozero.Itisanindicatorofthe efficiency or quality of
aninvestment.AprojectisagoodinvestmentpropositionifitsIRRisgreaterthanthe rate
of return that could be earned by alternate investments or putting
themoneyinabank account. Accordingly, the IRR of this project is computed
tobe20.98%indicatingtheviabilityoftheproject.

6. NetPresentValue

Net present value (NPV) is defined as the total present (discounted) value of
atime series of cash flows. NPV aggregates cash flows that occur during
differentperiods of time during the life of a project in to a common measuring
unit i.e.present value.It is a standard method for using the time value of money
toappraiselong-termprojects.NPVisanindicatorofhowmuchvalueaninvestment
or project adds to the capital invested. In principle,a project isaccepted if the
NPV is non-negative.Accordingly, the net present value of
theprojectat10%discountrateisfoundtobeBirr12.29millionwhichisacceptable.F
ordetaildiscountedcashflowseeAppendix7.A.5.

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7.4. Economicandsocialbenefits
The project can create employment for 116 persons.The project will
generateBirr 4.63 million in terms of tax revenue. The establishment of such
factorywillhaveaforeignexchangesavingandearningeffecttothecountrybysubstit
uting the current imports and exporting its products to the
internationalmarket. The project will also create backward linkage with the
agriculturalsectorandalsogeneratesincomefortheGovernmentintermsofpayrollt
ax.

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8.Financialanalysessupportingtables
Appendix7.A

Appendix7.A.1
Networkingcapital (in000Birr)

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 Appendix
7.A.2PRODUCTIONCOST(in000Bi
rr)

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 Appendix7.A.3
INCOMESTATEMENT(in000Birr)

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 Appendix 7.A.4

Cashflowforfinancialmanagement(in000Birr)

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 Appendix7.A.5DISCOUNTE

DCASHFLOW(in000Birr)