Cold Storage Unit Pre feasibility study

Pre feasibility Study COLD STORAGE (Fruit & Vegetable)Project profile-All fruits and vegetables require specialized post harvest treatment, appropriate temperature and relative humidity for their storage. Establishment of cold storage provides refrigerated storage and preservation facilities for several fruits, vegetables & flowers. Because of technology advancements and logistic strategies, the cold storage of perishable items has become an important stage in the distribution between manufacturers/processors and retail locations. The cold storage will ensure the increased availability and improved quality of high value perishable fruits and vegetables for both export and local sale, which would otherwise perish or deteriorate. This project is designed for storing of potatoes and apples/ kinnu but it can be used to store multiple products, stored in different compartments of the unit, where relative temperatures for respective products can be maintained. The major clientele of this business will be the export houses and the local trading and marketing units of potato and apple/ kinnu. The project will further aim at storing fruits & vegetables even during off-seasons. The project will ultimately assist the clientele in maintaining market price equilibrium throughout the year for potatoes.

Storage of Potato The purpose of potato storage is to maintain tuber quality and provide a uniform flow of tubers

to fresh market and processing plants round the year. Good storage should prevent excessive dehydration, decay and sprouting. It should also prevent high sugar concentrations which result in dark colored fried products. Following are the requisites for efficient potato storage:

Adequate insulation Outside waterproofing

Inside vapor proofing Ventilation, Air distribution, Adequate humidification

Properly designed controls for precisely maintaining the storage atmosphere. Temperature, humidity, and air movement are the most important environmental

factors affecting storability. Temperature requirements are determined by the intended use of the potatoes.

Potatoes are usually held in bulk piles 8 to 20 feet deep. Some are stored in pallet boxes for short periods. Pressure bruise and internal black spot are substantially lower with pallet storage but decay is often increased because of poor air circulation within boxes/bags.

The proposed project contains racking system build up by using good quality steel and wooden logs. These racks provide space for placing the potato bags & apple/ kinnu crates with sufficient intra spaces for air circulation. Early harvested potatoes are usually stored only briefly if at all. Such tubers are quite perishable and damage easily because of immature skins.

Opportunity Rationale Securing an adequate food supply has been the fundamental concern of mankind and

so has been the preservation of food. The loss of food in the post-harvest system is not new; it has always been a problem for man, even in the highly scientific and technological world of today. Among all the major problems persistent in the world regarding the fulfillment of the basic needs of people, food requirement stands at the top, as without ensuring satisfactory diets, people cannot lead healthy and productive lives.

In these present times of high population growth rates, food supply has become diminutive. For filling this gap between demand and supply, there is a need to conserve the food supply, in order to meet the growing and existing food requirements, especially fruits and vegetables, as these are more perishable.

The problem related with food loss is more prevalent in the less developed world as compared to the developed world. The developed countries have curbed the loss of food to a great extent by adopting new technologies and ways of storing food. Some examples of such measures are adoption and development of better harvesting equipment; establishment of collection centers at strategic points in major crop producing areas; remodeling of containers to add more protection to the produce; and more importantly the development of commercial storage plants/cold storages.

Furthermore, the purpose of storage of vegetables and fruits is to preserve and maintain the edible quality characteristics until they are consumed in the fresh state, which the cold storage serves.

Market Entry Timings The harvest season for potato is from December to February and of apple

is from July to November so the best time to enter in the cold storage business is December.

Proposed Location

For retail sales, location of the cold storage must be near a major road, and the area must have adequate parking space.

.Location of the cold storage should be done by keeping in view the following factors:

A cold storage facility must be in a well-drained area. It requires drains to remove water from condensation, and cleaning and sanitation operations. Providing good drainage is essential.

Availability of water Availability of Electricity Three phase of electricity is necessary when more than 10 tons of

refrigeration is needed. Wastewater disposal facility Appropriate sewage collection and disposal system must be considered. If any of above facility is not available the arrangement for the same must be

done prior to construction of cold store.3

Proposed Business Legal Status

It is recommended that this project should be started as sole proprietorship or partnership. Moreover, less complications and costs are involved informing, administering and running the sole proprietorship or partnership business. The tax rate applicable for sole proprietorship is lower than private or public limited. Most of the cold storages in the country are operating as sole proprietorship or partnership basis.

Proposed Capacity

The proposed cold storage facility has a maximum storage capacity of storing 60,000 bags of potato or 180,000 crates of apple at any given time.

It will be operational for potato storing period from February to July and will be available for in December & January.

It is also proposed that owner should maintain a stock of 7,200 bags of potato (15% of total capacity and keep on increasing the capacity by 5% uptil 30%) of his own that will earn extra profits in peak season and remaining 85% capacity will be utilized on rental basis.

Project Investment

The proposed project of potato cold storage needs a capital investment of about Rs. 75,214,920, which includes Building (civil work), machinery, Insulation of Expanded Polystyrene (EPS or Thermopore) with Plaster layer, Racking and preoperational expenses of Rs. 2,908,000. Rs. 7,136,000 would be required as working capital and cash requirement for purchase of 7,200 potato bags. The total project cost amounts to Rs. 82,350,920

Proposed Product Mix

In the proposed cold storage there would be a capacity to store 60,000 bags of potatofrom February to July and 180,000 apple/kinnu crates would be stored in December & January.

Project parameter

Capacity Human resourses Technology/machinary

60,000 potato bags /180,000 apple/ kinnucrates

10 Ammonia Gas Cold Store

Project parameter

Project cost IRR NPV PAYBACK PERIODRs. 82,350,920 26.49% 54,529,922 4.69

CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENTStrengths and Opportunities

good price. Use of machinary that is durable and fesible. Low operational cost because of energy efficient construction. Compartmentalization provide opportunity to store diferent commodities at their respective temperatures. Extend product range. By using effective marketing strategies cold storage business can attract more growers and traders. The establishment of wholesale market and cold storage facilities would enhance the pace and volumes of business by providing market place for commercial transactions for the domestic and international trade.

Sufficient quality control and reduction of waste will directly enhance availability of the produce. Further, the cold storage facilities would result in supplies during off-season which otherwise may not be possible.

Timely placement of products in the cold storage will help preserve their quality and improve shelf life. It will also avoid food contamination caused by microbial activity thus assuring availability of quality food products. Weaknesses and Threats Irregular government policies e.g., abnormal tax increase. Fluctuation or unexpected increase in electricity tariff.

Market potential & Target customer Most of the existing local Cold Storage’s are constructed on

locally developed methods, which maintain a uniform temperature for all commodities stored. The goods are not stored at their recommended relative storage temperatures and life, and because of this the quality of stored commodity is badly affected. Potatoes require specialized post harvest treatment, appropriate temperature and relative humidity control for their proper & optimum storage, which most of the existing local cold stores lack

Following are the potential customers of cold storage: Growers Traders

COLD STORAGE TYPES AND INFRASTRUCTURE

1. Traditional type cold storage (Insulated brick walls) Civil work -Two types of building may be constructed depending on the external environmental temperature and product type. It might be double wall having 4-6 inch gap between two walls or single wall having 9 inch thickness. Insulation =The insulating material that is traditionally used is Expanded Poly-

Styrene (Thermopore) having a thickness of 4-6 inches. A recent development in insulating material is Poly-Urethane. The later is 4-6 times efficient than the former.

Refrigeration system =Two types of refrigeration systems are used depending on product type and cold storage area.

Ammonia Based System -type of system is manufactured locally. After sale services and spare parts are readily available. This also contributes low capital investment. No need of highly skilled operators.

  Freeon Based System =This system normally utilizes imported compressors. High initial cost and require highly skilled operator for smooth operation.  

Racking =This includes combination of steel racks and wood logs etc. for storing of potato or any other products.

Pre-Fabricated Cold Storage

This type of cold storage is being used for delicate products that are mainly focused for export purposes. Polyurethane injected panels are manufactured at factory and are fixed together at project site using panel locking system. This type of clod storage requires less civil work (only roof for low heights). The initial cost is higher than the traditional cold storage (more than double). This cold storage provides better hygienic environment for delicate food products and have easy future expansion feature. The cold storage building consists of Pre-fabricated refrigerated (Walk-in type) structure. This type of structure is highly superior to any form of refrigerated storage construction previously available in Pakistan due to its better technology and energy efficiency. Polyurethane insulated panels are used to erect the building because these panels are metal clad and can be easily dismantled for relocating the cold storage site. The cold storage building has a roof of insulated corrugated sheet of galvanized mild steel to protect it from direct sun and rain. The floor has a surface of polyurethane insulated galvanized steel material. The floor is strong enough to withstand the distributed load. An automatic monitoring system is installed in the storage compartments for maintaining relative humidity and temperature and to eliminate any chances of human error during the refrigeration period.

PRODUCT PROCESS FLOW

Potato Bags received from the custom er Com m odities Transported

Receiving/ Conditioning Cham ber

Com m odities placed in storage

com partm ents

Distribution/ Conditioning Cham ber

Machinary and equipment detailM achinery (Am m onia Option 1 Option 2 Refrigeration System) Origin PAECO (Local) Grasso (Holland) Power 200 HP 200 HP Cost 13,000,000 20,000,000

2. Steel Racks Steel (tons) 180 180 Rate/ton 70,000 70,000 Cost Rs. 12,600,000 12,600,000 W ooden Ballay 6,500,000 5,100,000 Labor Cost 1,000,000 1,000,000 Sub Total 20,100,000 18,700,000

3. Insulation Option 1 (Therm opore) Option 2 (Polyurethane) Area (Sq. ft) 61,884 61,884 Insulation Rate 75 300 Cost 4,641,300 18,565,200 M esh and Plaster rate 50 Not Required Cost 3,094,200 Not Required Sub Total 7,735,500 18,565,200

4. Generator 3,000,000 3,000,000 Total Plant & 43,835,500 60,265,200 M achinery

LAND AND BUILDING

Land-It is recommended that the new storage facility site be located as close to the fields as possible, minimizing handling, preserving product quality and limiting transport costs. Approximately 1 Acre of land would be required for this cold storage.

Infrastructure requirementsBuilding Area Rs. / Total Cost

Sq.ft. (Rs.) Cold Storage 19,095 1,200 22,914,000 Parking/Open Area 5,000 200 1,000,000 Other construction (Boundary wall, Sub station, OH water tank, Generator Room , 1,000,000 W APDA m eter room etc. Total 24,095 24,914,000 Design & Consultancy Charges @ 3% 747,420 Total Infrastructure Cost 25,661,420

PROJECT ECONIMICS

Project Cost Head Cost (Rs.) Land 2,650,000 Building 25,661,420 Plant & M achinery 43,835,500 Office Equipm ent 100,000 Furniture & Fixture 60,000 Pre operational expenses, Utilities Charges, & contingencies 2,908,000 Total Assets 75,214,920 W orking Capital W orking capital required for Salaries & other expenses 656,000 Stock & Inventory 6,480,000 Total Project Cost 82,350,920

Project Returns

IRR % 26.49 NPV 54,529,922 Pay Back Period Yrs 4.69

Estimated time frame for project Completion

The estimated time frame for the completion of the project is eight months.

FINANCIAL ANALYSIS

Incom e Statem ent PROJECTED INCOM E STATEM ENT

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Revenue from Cold Storage Charges 9,792,000 11,151,360 12,414,600 12,745,656 14,020,222 15,422,244 16,964,468

18,660,915 20,527,006 22,579,707 Revenue from Sale of Potatos 12,960,000 20,908,800 31,036,500 40,968,180 45,064,998 49,571,498 54,528,648

59,981,512 65,979,664 72,577,630 Revenue from Apple / Kinnu 11,520,000 13,939,200 16,552,800 18,208,080 20,028,888 22,031,777 24,234,954

26,658,450 29,324,295 32,256,724 Total Sales 34,272,000 45,999,360 60,003,900 71,921,916 79,114,108 87,025,518 95,728,070 105,300,877 115,830,965 127,414,061 Cost of Goods Sold Cost of Potatos Purchase 6,480,000 9,979,200 14,139,563 17,815,849 18,706,641 19,641,973 20,624,072

21,655,276 22,738,039 23,874,941 Direct Labor 528,000 638,880 758,670 834,537 917,991 1,009,790 1,110,769

1,221,846 1,344,030 1,478,433 Utility Charges-Electricity Cost for 3,378,000 3,715,800 4,080,630 4,453,068 4,862,750 5,313,400 5,809,115 6,354,401 6,954,216 7,614,013 Total 10,386,000 14,333,880 18,978,863 23,103,454 24,487,382 25,965,163 27,543,955 29,231,522 31,036,286 32,967,387 Gross Profit 23,886,000 31,665,480 41,025,038 48,818,462 54,626,726 61,060,356 68,184,115 76,069,355 84,794,679 94,446,674 Operating Expenses Payroll Adm inistration 1,668,000 1,834,800 2,018,280 2,220,108 2,442,119 2,686,331 2,954,964

3,250,460 3,575,506 3,933,057 M isc. (M aintenance, Telephone, St 300,000 330,000 356,250 356,250 356,250 356,250 356,250

356,250 356,250 356,250 Am ortization pre Ops. Exp. 581,600 581,600 581,600 581,600 581,600 Prom otional Expenses 68,544 51,408 41,126 32,901 26,321 21,057 16,845

13,476 10,781 8,625 Depreciation 6,988,692 6,282,233 5,648,924 5,080,625 4,570,279 4,111,722 3,699,525

3,328,886 2,995,537 2,695,675 Total 9,606,836 9,080,041 8,646,181 8,271,484 7,976,569 7,175,359 7,027,584 6,949,072 6,938,075 6,993,607 Operating Profit 14,279,164 22,585,439 32,378,857 40,546,978 46,650,157 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067 Non Operating Expenses Financial Charges 7,041,004 5,558,687 4,076,371 2,594,054 1,111,737 - - - - - Profit before Tax 7,238,160 17,026,752 28,302,486 37,952,925 45,538,419 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067 Tax 1,809,540 4,256,688 7,075,622 9,488,231 11,384,605 13,471,249 15,289,133

17,280,071 19,464,151 21,863,267 Profit after Tax 5,428,620 12,770,064 21,226,865 28,464,693 34,153,815 40,413,747 45,867,398 51,840,212 58,392,453 65,589,800

Balancesheet Balance Sheet

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Current Assets Cash Balance - 4,530,220 15,930,515 35,247,110 61,213,717 91,836,496 135,882,371 184,935,400 239,553,558 300,350,577 369,562,668 W orking capital required for Salaries & oth 656,000 721,600 791,510 858,786 932,790 1,014,194 1,103,738 1,202,237 1,310,585 1,429,769 - Stock & Inventory 6,480,000 6,804,000 7,144,200 7,501,410 7,876,481 8,270,305 8,683,820 9,118,011 9,573,911 10,052,607 10,555,237 Receivable - 816,000 929,280 1,034,550 1,062,138 1,168,352 1,285,187 1,413,706 1,555,076 1,710,584 1,881,642 Total 7,136,000 12,871,820 24,795,505 44,641,856 71,085,125 102,289,346 146,955,115 196,669,353 251,993,131 313,543,537 381,999,548 Gross Fixed Assets Net Fixed Assets 72,306,920 65,318,228 59,035,995 53,387,071 48,306,446 43,736,167 39,624,445 35,924,920 32,596,034 29,600,497 26,904,821 Intangible Assets Pre-operational Expenses 2,908,000 2,326,400 1,744,800 1,163,200 581,600 - Total 2,908,000 2,326,400 1,744,800 1,163,200 581,600 - - - - - - Total Assets 82,350,920 80,516,448 85,576,300 99,192,127 119,973,172 146,025,513 186,579,560 232,594,273 284,589,165 343,144,033 408,904,369 long term loan 41,175,460 24,705,276 16,470,184 8,235,092 - Current Liabilities current portion of long term liability - 8,235,092 8,235,092 8,235,092 8,235,092 - - - - - - Accounts Payable - 972,000 1,496,880 2,120,934 2,672,377 2,805,996 2,946,296 3,093,611 3,248,291 3,410,706 3,581,241 Total 41,175,460 33,912,368 26,202,156 18,591,118 10,907,469 2,805,996 2,946,296 3,093,611 3,248,291 3,410,706 3,581,241 Equity Paid -up Capital 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 41,175,460 Retained Earnings - 5,428,620 18,198,684 39,425,549 67,890,242 102,044,057 142,457,804 188,325,202 240,165,414 298,557,867 364,147,668 Total 41,175,460 46,604,080 59,374,144 80,601,009 109,065,702 143,219,517 183,633,264 229,500,662 281,340,874 339,733,327 405,323,128 Total Liabilities And Equity 82,350,920 80,516,448 85,576,300 99,192,127 119,973,172 146,025,513 186,579,560 232,594,273 284,589,165 343,144,033 408,904,369

Cash Flow Statement Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year

7 Year 8 Year 9 Year 10 Operating Activities Profit before tax - 7,238,160 17,026,752 28,302,486 37,952,925 45,538,419 53,884,996 61,156,531 69,120,282 77,856,605 87,453,067 Am ortization of Preoperational Expenses (2,908,000) 581,600 581,600 581,600 581,600 581,600 - - - - - W orking capital required for Salaries & other (656,000) (65,600) (69,910) (67,276) (74,004) (81,404) (89,544) (98,499) (108,349) (119,184) 1,429,769 Depreciation - 6,988,692 6,282,233 5,648,924 5,080,625 4,570,279 4,111,722 3,699,525 3,328,886 2,995,537 2,695,675 Stock & Inventory (6,480,000) (324,000) (340,200) (357,210) (375,071) (393,824) (413,515) (434,191) (455,901) (478,696) (502,630) Account Receivable - (816,000) (113,280) (105,270) (27,588) (106,214) (116,835) (128,519) (141,371) (155,508) (171,058) Account Payable - 972,000 524,880 624,054 551,443 133,619 140,300 147,315 154,681 162,415 170,535 Incom e tax paid - (1,809,540) (4,256,688) (7,075,622) (9,488,231) (11,384,605) (13,471,249) (15,289,133) (17,280,071) (19,464,151) (21,863,267) Cash provided by operations (10,044,000) 12,765,312 19,635,387 27,551,687 34,201,699 38,857,871 44,045,874 49,053,029 54,618,159 60,797,019 69,212,091 Financing Activities Share capital 41,175,460 - - - - - - - - - - Long term Loans 41,175,460 (8,235,092) (8,235,092) (8,235,092) (8,235,092) (8,235,092) - - - - - Cash Provided/Used for Financing Activities 82,350,920 (8,235,092) (8,235,092) (8,235,092) (8,235,092) (8,235,092) - - - - - Investing Activities Capital Expenditure (72,306,920) - - - - - - - - - - Cash Used Provided by Investing Activities (72,306,920) - - - - - - - - - -

Net Cash inflow/(outflow) - 4,530,220 11,400,295 19,316,595 25,966,607 30,622,779 44,045,874 49,053,029 54,618,159 60,797,019 69,212,091

KEY ASSUMPTIONS

Capacity Store's Capacity Bags 60,000 Capacity available on rental basis Bags 40,800 Stock of own purchased potatoes Bags 7,200 First Year Capacity for Potatoes (Rental) % age 85.00% Percentage of own Potato Bags % age 15.00% Annual Growth rate % age 10.00% M axim um Capacity % age 95.00%

Operational capacity

Operational Capacity Year-1 Year-2 Year-3 Year-4 Year-5 Year-6 Year-7 Year-8 Year-9 Year-10

Operational 80% 88% 95% 95% 95% 95% 95% 95% 95% 95% Capacity (% age) Charges/Bag 240 264 290 319 351 386 425 467 514 565 Operational 40,800 42,240 42,750 39,900 39,900 39,900 39,900 39,900 39,900 39,900 Capacity (Rental Bags) Operational 7,200 10,560 14,250 17,100 17,100 17,100 17,100 17,100 17,100 17,100 Capacity (Owned Bags) Operational Capacity (Crates) 144,000 158,400 171,000 171,000 171,000 171,000 171,000 171,000 171,000 171,000

Revenue Relates Assumption

Service Charges Per Bag Rs. 240 Sale Price Growth Rate 10%

Sale Price of own Bag (120 kg) Rs.1,800

Thankyou