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Pre-Feasibility Study
Prime Minister’s Small Business Loan Scheme
(12 Animal Dairy Farm)
Small and Medium Enterprises Development Authority
Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan e Iqbal, Egerton Road, Lahore
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs
in project identification for investment. The project pre-feasibility may form the basis of
an important investment decision and in order to serve this objective, the
document/study covers various aspects of project concept development, start-up, and
production, marketing, finance and business management.
The purpose of this document is to facilitate potential investors in Dairy Farm by
providing them with a general understanding of the business with the intention of
supporting potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes such
reports reveal certain thumb rules; best practices developed by existing enterprises by
trial and error, and certain industrial norms that become a guiding source regarding
various aspects of business set-up and it’s successful management.
Apart from carefully studying the whole document one must consider critical aspects
provided later on, which form basis of any Investment Decision.
3. INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in
October 1998 with an objective to provide fresh impetus to the economy through
development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the national
income, through development of the SME sector, by helping increase the number, scale
and competitiveness of SMEs" , SMEDA has carried out ‘sectoral research’ to identify
policy, access to finance, business development services, strategic initiatives and
institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment has
been a successful hallmark of SME facilitation by SMEDA
Concurrent to the prefeasibility studies, a broad spectrum of business development
services is also offered to the SMEs by SMEDA. These services include identification of
experts and consultants and delivery of need based capacity building programs of
different types in addition to business guidance through help desk services.
4. INTRODUCTION TO SCHEME
Prime Minister’s ‘Small Business Loans Scheme’, for young entrepreneurs, with an
allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide
subsidised financing at 8% mark-up per annum for one hundred thousand (100,000)
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beneficiaries, through designated financial institutions, initially through National Bank of
Pakistan (NBP) and First Women Bank Ltd. (FWBL).
Small business loans with tenure upto 7 years, and a debt: equity of 90 : 10 will be
disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber
Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally
Administered Tribal Areas (FATA).
5. EXECUTIVE SUMMARY
Dairy Farm is a project to attract small investors, in which, the 12 cows and buffalos are
raised on specific feed to gain high milk yield. Dairy farming is highly complex as it
includes breeding, management, feeding, housing, disease control and hygienic
production of milk on farm.
A dairy farm with a population of 12 cattle (6 cows and 6 buffalo) need a total
investment estimated at Rs. 2.05 million out of which the capital cost of the project is
Rs.1.95 million for animal purchase and the building construction and the rest is used to
meet the working capital requirement.
The project is expected to achieve the revenue of Rs. 2.00 million in the first year with
projected IRR and Payback of this project are 31% and 3.87 years respectively. The
farm will provide employment opportunity to 01 individual other than the owner
manager.
Legal status of the projected id proposed as a sole proprietorship.
6. BRIEF DESCRIPTION OF PROJECT & PRODUCT
Dairy farming is one of the fast growing businesses in the country which not only meet
the increasing demand of milk in the region but also contribute its part in export and
national income.
Keeping in view the significance of dairy farming, business nature and industry
competition, it is recommended to focus on management and operational aspects of the
farm, quality of herd mix, vaccination of the animals, feeding standards, and housing
system to make the business profitable.
The dairy farm is proposed to be established on purchased farm land and constructed
structure having total area of 3,485 sqft.
The proposed model is about 12 animals (6 cows and 6 buffaloes) to achieve milk
production of 33,288 liters by the end of first year. Milk production will be sold to the
domestic and bulk buyers at the rate of Rs.60 per liter with an annual price increase of
10%.
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7. CRITICAL FACTORS
1. Background knowledge and related experience of the entrepreneur in dairy farm
operations.
2. Selection of cows and buffalos with established minimum daily production of 10
liters or above buffalo and 12 liters or above for cows, certified with no diseases
with 2nd or 3rd lactation
3. Application of good husbandry practices as below
a. Housing and shelter
b. The housing style should be tie stall system
c. Regular vaccine of HS and FMD is necessary
d. Feeding should be done thrice and 10% crude protein (CP) and 1500 kcal
energy
e. Milk should be refrigerated at 4 Oc and transport at 11 Oc temperatures
8. INSTALLED & OPERATIONAL CAPACITIES
Production capacity is based on project size. The feasibility study suggests an initial herd size of twelve (12) animals, which is economical to justify the overhead cost. Initially, herd mix of 50% cows and 50% buffaloes is recommended to get the maximum milk production round the year. The dairy farm will have the capacity to produce 33,288 liters of milk per annum.
The buffalo breeds found in Pakistan are Nili-Ravi and Kundi. The cattle breeds are Sahiwal, Red Sindhi, Tharparkar and Cholistani. The crossbred cattle may be considered also as in Pakistan, crossbreeding is recommended for non-descript cattle breeds with semen of local high producing breeds like Sahiwal, Cholistani, Red Sindhi etc. or exotic breeds like Holstein Friesien, Jersey etc. These crossbred animals have more milk production, less calving interval and early age of maturity as compared to local animals with low genetic potential.
9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The development of urban and peri-urban commercial dairy farms is something new in
livestock production. Metropolitan cities like Lahore, Karachi, Multan, Rawalpindi,
Peshawar, Noshehra, Hyderabad, Sukkur Gilgit and Quetta etc are the major market of
milk. Hence, dairy farm established in peri-urban areas of these cities fulfils the daily
need of these cities.
10. POTENTIAL TARGET MARKETS
Domestic consumers, milk processors, dairy companies, milk collection companies and
contractors are the major clients of a dairy farm.
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11. PROJECT COST SUMMARY
A detailed financial model has been developed to analyze the commercial viability of
Dairy Farm Project 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.
The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as annexure.
11.1. Project Economics
All the figures in this financial model have been calculated for 12 Dairy animals
consisting of cows and buffalos in equal proportion.
The following table shows internal rates of return and payback period.
Table 1: Project Economics
Description Details
Internal Rate of Return (IRR) 31%
Payback Period (Year) 3.87
Returns on the scheme and its profitability are highly dependent on the efficiency of
above mentioned critical factors. In case dairy farm project is not able to attain target
milk production and implement effective husbandry practices, it will not be able to cover
the potential market and recover payments; hence cost of operating the business will
increase. Similarly, the project using good quality and prescribed inputs will essential for
this venture.
11.2. Project Financing
Following table provides details of the equity required and variables related to bank financing;
Table 2: Project Financing
Description Details (Rs.)
Total Equity (10%) 205,699
Bank Loan (90%) 1,851,265
Markup to the Borrower (%age/annum) 8%
Tenure of the Loan (Years) 7
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11.3. Project Cost
Following requirements have been identified for operations of the proposed business.
Table 3: Capital Investment for the Project
Capital Investment Amount (Rs.)
Land 79,752
Building/Infrastructure 210,000
Cows and Buffalos 1,500,000
Machinery & Equipment 66,300
Pre-Operating Costs 100,909
Total Capital Costs 1,956,961
Cash in Hand 100,000
Total Project Cost 2,056,961
11.4. Space Requirement
The area has been calculated on the basis of space requirement for shed area, open
paddock, servant rooms and stores as in conventional open housing system. Following
table shows calculations for project space requirement;
Table 4: Space Requirement
Sr. No Description Area sq.ft
1 Shed for cows 600
2 Open Paddock for Cows 600
3 Shed for Buffalos 600
4 Open Paddock for Buffalos 600
5 Stores for fodder, concentrate & machine room 150
6 Utensils & milk storage 150
7 Servant Room, Wash room 90
8 Silage Bunker 384
9 Open Space 311
Total 3,485
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Total investment in building and infrastructure is calculated to be approximately Rs. 0.21 million.
11.5. Machinery and Equipment
Following table provides list of machinery and equipment required for the proposed
dairy farm;
Table 5: List of Machinery and Equipment
Sr. No Description Unit Rate (Rs.) Qty Cost (Rs.)
1 Calf feeder 1,200 3 3,600
2 Teat Dip Cup 350 2 700
3 Maize Cutter 20,000 1 20,000
4 Water Pump 20,000 1 20,000
5 Freezer 22,000 1 22,000
Total
66,300
In addition to above few other equipment are required, such as fodder cutter, water
pump and some buckets etc.
11.6. Raw Material Requirements
Following tables show raw material requirement to run the proposed dairy farm;
Table 6: Feeding Requirement for Cows
Description Kgs/day/animal Rs./kg Amount (Rs.)
Silage 25.00 6.00 150.00
Concentrate 4.62 35.00 161.70
Total 311.70 Table 7: Feeding Requirement for Buffalo
Description Kgs/animal/day Rs./kg Amount (Rs.)
Silage 25.00 6.00 150.00
Concentrate 5.00 35.00 175.00
Total 325.00
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Table 8: Feeding Requirement of Calves
Description Kgs/animal/day Rs./kg Amount (Rs.)
Buffalo Calf (younger than one year)
Silage 6.6 6.00 39.4
Concentrate 2.2 35.00 120.0
Total Fodder 159.4
Cow Calf (younger than one year)
Silage 2.6 6.00 15.8
Concentrate 0.9 35.00 120.0
Total Fodder 135.8
11.7. Human Resource Requirement
One milk man will be required for milking and care of animals, whereas owner manager will look after the overall business operations.