Goat Farming Investment Proposal - SL EP

INVESTMENT PROPOSAL

COMMERCIAL SCALE GOAT FARMING IN THE EASTERN PROVINCE

Ministry of Agriculture, Animal Production and Development,

Industries, Fisheries and Tourism

Eastern Province

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Contact Information

Ministry of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries & Tourism, Eastern Province

Website: http://www.ep.gov.lk/minagriindex.asp

Email: [email protected]

Mr. K. Pathmanathan, Secretary (+94)-026-3269976

Dr. R. Gnanasekar, Director Planning (+94)-026-2223076

Acknowledgements

The Ministry of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries & Tourism of the Eastern Province has developed this series of investment proposals in consultation with several industry stakeholders. It wishes to thank all relevant stakeholders and government institutions for sharing their valuable resources and providing information that made the financial estimates possible. The Ministry wishes to thank USAID and the USAID-supported VEGA FEG Program for the invaluable support rendered towards the economic development of the Eastern Province, especially for encouraging large scale investments and building capacity of human resources by providing technical assistance since the end of the conflict.

This publication is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents are the sole responsibility of the Ministry of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries & Tourism of the Eastern Province and do not necessarily reflect the views of USAID or the United States Government.

This publication was produced for review by the United States Agency for International Development. It was prepared byMinistry of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries& Tourism of the Eastern Province.

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----------------------Hon. Minister’s Message

The agricultural sector is the backbone of Eastern Province economy and the means of livelihood for most of our rural population. Sustained agricultural growth is critical for uplifting the living standards of our people as well as generating rapid economic growth. However, in spite of the importance of the agricultural sector, farming in our province has for many years been predominantly a small scale, rain fed and poorly mechanized activity of low production and productivity. In order to address these challenges, my ministry launched several agricultural development

programmes and I am pleased to note that implementation of such development initiatives has been largely successful. As a result, the agriculture sector surpassed the growth target and presently contributes towards 23% of the provincial GDP. It is noteworthy to mention that under the policy framework of the government the “Mahinda Chinthana” the Eastern Provincial Council has accorded highest priority during the last five years to realize the full potential of the agriculture sector in Eastern Province. In the recent past Eastern Province agriculture has undergone remarkable modernization thanks to several initiatives by the government and donor institutions and this has made spectacular productivity gains possible through rapid improvement in yields. As the Minister of Agriculture, Animal Production and Development, Rural Industries Development Tourism and Fisheries, Eastern Province I encourage private and foreign investment in the development of these sectors. New investment will pave the way for infusion of capital and technology and improve productivity and value addition leading to increased production and prosperity in Eastern Province. My ministry is presently involved in implementing proactive development initiatives with commitment to inclusive development and creation of an investor friendly environment. These agriculture sector investment proposals are an outcome of series of workshops and discussions we had with relevant stake holders i.e. Government institutions, private sector agencies and non-governmental agencies. These proposals clearly spell out the available potential and resources involving production, avenues for value addition and marketing of agricultural produce and focus all efforts towards achieving excellence in agriculture through private and foreign investments in Eastern Province. I also would like to take this opportunity to put on record my appreciation to the United States Agency for International Development (USAID) and its VEGA FEG Program for the assistance provided to the Eastern Province through its various economic growth and technical assistance interventions. I wish to reaffirm the commitment of my ministry in creating an enabling environment for the private and foreign investments and I urge all stakeholders to play their respective roles in ensuring that the Eastern Province of Sri Lanka transforms itself as a most preferred destination for investments. Z. A. Naseer Ahamed (Eng), M.P.C Minister of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries & Tourism,Eastern Province

COMMERCIAL SCALE GOAT FARMING IN THE EASTERN PROVINCE

Contents

Page No

The Eastern Province and Livestock Production…………………………………………. 01

Investment Opportunity for Establishment of Commercial Goat Breeding Farm…… 02

The Investment Proposal…………………………………………………………………… 03

Markets for Goats ………………………………………………………………………….. 05

Potential Locations for the Project………………………………………………………… 06

Investment Incentives……………………………………………………………………… 07

Procedure for Long Term Lease of State Lands………………………………………… 09

Useful Contacts……………………………………………………………………………… 11

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The Eastern Province and Livestock Production

The Eastern Province is one of the nine administrative provinces in Sri Lanka comprising 15% of the total land area of the country, 25% of the coastal belt and 8% of the country’s population. The land area is 9,361 sq km and inland water resources to the extent of 635sq. km totaling 9,996 sq. km. The Province contributes 6% to the national GDP. The total agriculture sector accounts for approximately 23% of the provincial GDP in Eastern Province compared with 12% for the entire country. The Eastern Province contributes 20% to milk production and 8% to meat production in the country. Approximately 70% of the population is dependent on agriculture and livestock for their livelihoods. The topography and agro climatic conditions of Eastern Province are ideal for livestock development. Suitable farmland and water are available as unutilized resources in the province. The necessary manpower, both skilled and unskilled, is available in abundance. Scarcity of quality breeding material was identified as a major constraint in developing this sector to its full potential. Therefore the establishment of commercial livestock farms have been facilitated by the government and private sector as an urgent priority to meet demand and to create self-employment opportunities in this province. Public sector support in livestock rearing, veterinary extension services and increasing the supply of breeding animals have been intensified to support the industry. The government is committed to encouraging private sector and community participation in livestock production; value addition and marketing; production of breeding material; and supply of feed ingredients such as maize, rice bran, gingelly and coconut poonac. A high priority is accorded to the establishment of production units for rural based animal feed resources. The development of a commercially viable private sector with investment in modern livestock farming technology is vital to transform the present subsistence level livestock production into commercial livestock production.

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Investment Opportunity for the Establishment of a Commercial Goat Breeding Farm

Sri Lanka has a goat population of around 785,000 of which 25% are found in the Eastern Province. Goats are among the main meat producing animals in Sri Lanka and mutton is one of the choicest meats retailing at around 200% over the price of beef. There is huge domestic as well as international demand. In addition to local production Sri Lanka imports around 360MT of mutton annually. Besides meat, goats produce other products like milk, skin and manure. Goat milk is valued higher than cow’s milk with special demand from asthmatics and those allergic to cow’s milk.

The majority of the commercial goat farms operatewith positive net returns and goat rearing has been found equally rewarding under both intensive and semi intensive systems of management. Intensification and commercialization of goat farmingis important because of shortage of resources for extensive management. Use of improved technologies, superior breeding materials, low cost feed and fodder and innovative marketing of the produce are an essential component for successful commercial goat production.The significant opportunity now is to invest in a commercial goat breeding farm in the Eastern Province where the demand for goat meat production is high.

Goat Farming in the Eastern Province

Goat rearing is a popular livestock activity in Eastern Province and has been the traditional form of livestock production among livestock farmers for several decades Goat rearing is concentrated in areas such as Kinniya, Muthur, Kuchchaveli, Pottuvil, Alayadivembu, Thirukkovil, Kiran, Chenkalady, Kokkaddichcholai and Arayampathy. Availability of vast tracts of scrub jungle areas and unutilized manpower are useful resources in developing this sector in Eastern Province. Around 15% of the goat population is reared for milk while the balance is kept solely for meat. Jamnapari, Jamnapari crosses and Sannen are the most preferred breeds in Eastern Province. It is estimated that there are about 194,160 goats and around 16% of them are improved cross breeds while the balance are of indigenous type. Around 5,528kg of mutton and 461 litres of goat milk is produced in Eastern Province per day. Scarcity of quality breeding stock and goat diseases such as tetanus, parasitism and goat paralysis are factors, which restrain the growth of this sector to its full potential

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The Investment Proposal The total capital outlay for the establishment of a commercial goat breeder farm consisting rear 2000 does and 100 bucks under semi intensive management system is LKR 28 million. Annual operating costs will be in the region of LKR 5.6 million. It is envisaged that the investor will lease 55ha of State land that has been identified for this purpose and develop it into a modern goat breeder farm. Improved Jamnapari stud goats will be procured locally from state breeder farms and private breeders and bred with local indigenous she-goats. The investment will generate 3,570 kids per annum which will be marketed to farmers in the Eastern Province. A two fold increase in milk and meat production could be achieved on first generation offspring from this project. Kids born under this project will be reared separately in a kid rearing unit and will be sold to farmers when they reach sexual maturity and become suitable for breeding. The main objective is to produce and sell goat breeding material, which have high production potential and suitable to Eastern Province agro climatic zone. Jamnapari is the most suitable breed to be used in this cross breeding programme. The capital and recurrent cost breakdown is shown in Table 1 and Table 2 below.

Table 1: Capital Cost of Goat Breeder Farm

Cost Element Value in LKR

1. a) Does - 2000 Nos. @ LKR 9350/- each 18,700,000

b) Bucks - 100 Nos. @ LKR8,150/- each 815,000

2.a) Shed for Does - 2000 Does @ 10sq.ft/animal x LKR 200/sq. ft 4,000,000

b) Shed for Bucks - 100 Bucks @ 20sq.ft/animal x LKR 200/sq. ft 400,000

c) Shed for Kids - 4000 Kids @ 4sq.ft/kid x LKR 200/sq. ft 3,200,000

3. Equipment 200,000

4. Establishment of fodder Unit 50 acres (3 seasons/ ac) 850,000

5. Wells (01 No) 100,000

6. Irrigation System 80,000

7. Building 200,000

Total Capital Cost 28,545,000

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Table 2: Average Annual Operating Cost and Revenue Description Total Value in LKR

Supplementary Feed Cost

For 2000 Does for 3 months (6.75kg/Month/ Doe) 1,012,500

For 100 Bucks for 3 months (7.5kg/ Month/ Buck) 56,250

For 4000 Kids for 3 months (3.75kg/ Month/ Kid) 1,004,063

2. Labour Cost (2 labour/ Unit) (11500/- per Month per Labour) 2,760,000

3. Veterinary Cost 340,800

4. Land Lease 412,500

5. Electricity and maintenance of irrigation system 25,000

Total Cost 5,611,113

Revenue Estimates

Sale of Young Bucks (1785 Nos. of 17 kg each @400/Kg) 12,138,000

Sale of Young Does (1785 Nos. of 15 kg each @460/Kg) 12,316,500

Sale of manure 400,000

Total Revenue Estimate 24,854,500

At current market rates young bucks may be sold at LKR400/kg and young does at LKR 460/kg. It is expected that the weight of the young animals will be 17kg per buck and 15kg per doe. Based on these rates the investment will generate a payback in under two years with an internal rate of return of 53%. Table 3 shows the investment ratios.

Table 3 Investment Ratios Pay Back Period 2.28 NPV (LKR) 32,919,854 IRR 52.62% ROI 109.98% Present Value of Cost (LKR) 45,692,446 Present Value of Benefit (LKR) 78,612,300 Benefit Cost Ratio 1.72

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Markets for Goats The demand for goats and goat meat is higher among Hindu and Muslim communities in Sri Lanka where they are slaughtered in religious ceremonies. Especially during the Muslim festival of Ramzan the demand for high quality goats increases significantly and price of mutton is extremely high. Goat is the most widely consumed red meat, eaten by more than 70% of the world's population. Although considered a red meat, goat mutton is leaner and contains less cholesterol and fat than both lamb and beef, and fewer calories than beef or chicken. World cuisines best known for their use of goat include Middle East, North Africa, India, Pakistan, Mexico, and Caribbean Islands. Cabrito (Capretto in Italy), or milk-fed baby goat, is in much demand in star class hotels and restaurants. In 2011 Sri Lanka imported 363.8 MT of mutton valued at LKR 162.34Mn and exported 7.4 MT valued at LKR 4.1Mn.

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Potential Locations for the Project The following locations in the Eastern Province have the necessarylocational advantages to establish a commercial goat farm investment. Trincomalee District: Kuchchaveli, Kinniya, Muttur, Eachchilampattu

Batticaloa District: Vaharai, Valaichenai, Chenkalady Kiran Ampara District: Thirukovil MahaOya Padiyathalawa Damana

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Investment Incentives Government incentives are available in the agriculture sector for farming associated with advanced technology, distribution, collection & marketing, storage, cold rooms, ice plants, animal husbandry and out grower schemes, plant & nursery, pre/post harvest management, cultivation of plants of any description. Table 4 below shows the current investment incentives available for new companies.

Table 4: Investment Incentives for Investors under BOI Regulations Investment Category Minimum Investment Tax Holiday Small investment LKR 25 Million 04 Years Medium scale investment LKR 50 – 100 Million 04 Years

LKR 100 – 200 Million 05 Years LKR Over 200 Million 06 Years

Large scale Investment LKR 300 – 500 Million 06 Years LKR 500 – 700 Million 07 Years

LKR 700 – 1,000 Million 08 Years LKR 1,000 – 1,500 Million 09 Years LKR 1,500 – 2,500 Million 10 Years Above LKR 2,000 Million 12 Years

Sri Lanka scores well on the World Bank Ease of Doing Business Index ranking 81 out of 189 countries surveyed and is far ahead of comparative countries in the region.

Source: World Bank, Doing Business Report 2013

Figure 2 below charts the procedure for application for Board of Investment approval.

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0 20 40 60 80 100 120 140

India

Bangladesh

Regional Average South Asia

Nepal

Pakistan

Maldives

Sri Lanka

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Figure 2: Investment Approval Process

BOI Approvals

Application Submission for BOI Approval

Letter of Acknowledgement of Business Activity

Incorporation of Company (Department of Registrar of Company)

Formal Letter of Approval

Signing of BOI Agreement (Section 17 Projects)

Commence Implementation (Within the specified

period)

Certificate of Conformity (COC) Environment Protection License

(EPL)

Commence Commercial Operation

Assigning of a Project Officer to

Guide the Investor

• Site Approval (Engineering Approvals Dept- BOI)

• Environmental Clearance

(Environment Dept. BOI/ CEA)

Collect the Draft Agreement

(Legal Dept- BOI)

Opening of Bank A/C S/A

(Optional)

Preliminary Clearance (If applicable only) • For the project Activity • Rules of Origin Certificate • Import/ Export License

Initial Environment Examination (IEE)/ Environmental Impact Assessment (EIA)

(If applicable)

Sourcing of raw materials (If applicable)

Preliminary Planning Clearance for the

Building (If applicable only)

Opening of Bank A/C

(FCBU/SIA)

Development Permit (If applicable only)

Registration for VAT/ TIN (Inland Revenue Dept)

Import Export Registration (Sri Lanka Customs)

Utilities Electricity: - Ceylon Electricity

Board Water: - National Water

Supply &Drainage Board

Telecommunication: - SLT/ Private

Work Permit & Residence Visa (Ministry of Defense &

Dept. of Immigration & Emigration

Certificate of Conformity

(COC) (If applicable only)

Import (duty free items)/ Export - BOI Approval

(IFC Unit/ Engineering) - Registration

(Investor Services Dept - BOI

• Recommendation for Work Permit & Residence Visa

(Investor Facilitation Unit - BOI

SIA : Securities Investment Account FCBU : Foreign Currency Banking Unit

* for details please refer infrastructure brochure

* residence visa can be obtained at any stage of the process

Source : Board of Investment

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Procedure for Long Term Lease of State Lands

Lease permits are granted under State Land Ordinance No.8 of 1947. Lands are leased to people and institutions for a 30 year of period for residential, agricultural or commercial purposes. The leasing period can be extended to 50 years for special projects. Upon the success of the initial lease a request may be made for the extension of the period of lease. These permits can be transferred and mortgaged with prior approval of the Land Commissioner.

Figure 3: Procedure for Lease of State Lands

Source: Land Commissioner General’s Department

Applicant Survey Superintendent

Divisional Secretary

Reques

9 Charging of rental & handing over physical

possession

1 8 Survey Requisition

7 Valuation

Calling

Valuation Department

PLC

Recommendation

2

Land Commissioner General

6 Approvals

Recommendation

3

Secretary to the Ministry of Lands/ Minister of

Lands

4 Recommendation

5 Approval

Presidential Secretariat

11 Leases for Signature

12 Lease Indenture

Preparation of Lease

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Diagram

13 Lease Indenture

Land Registry 14

15 Lease

Indenture

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Conditions for granting state lands on long term lease for the special promotion projects

1. Special Promotion Projects are: i. Approved cabinet project

ii. A project approved by the board of investment iii. A project approved by the ministry of industries iv. A project with a special patronage of any state affiliated institution

2. General documents which the applicant should submit i. Request

ii. Project Report. iii. Project Approved by Board of Investment/ Ministry of Industry/ the other institution iv. Registration of company. v. If a joint venture, the details of the directory (the details under the form 48 of the

company registration Act). vi. Affidavits as per format issued by the Divisional Secretary, which affirms that the

properties belong to them, are within the limit of 50 Acres.

3. General conditions applied to the lessees i. Term of lease is thirty years (30).

ii. This will be extended up to 50 years under the special approval of the cabinet. iii. Rental must be annually paid. iv. The amount of lease will be quinquennially revised by 50%. v. The Land cannot be used for any purpose for which the land was obtained.

vi. The land must be maintained in a proper state of development. vii. No sub-leasing, mortgage and vesting can be done without due permission.

viii. Special conditions which could be stipulated by the other institution. ix. Actions could be taken in order to cancel the lease indenture on the occasion of

violating the conditions.

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Useful Contacts

Ministry of Agriculture, Animal Production & Development, Rural Industries Development, Fisheries & Tourism Eastern Province Kanniya Road Varothayanagar Trincomalee Sri Lanka Tel : +94 26 2222441 Fax: +94 11 2222025 E -mail: [email protected] Website: www.ep.gov.lk

Department of Animal Production and Health Eastern Province Inner Harbour Road Trincomalee Sri Lanka Tel : +94 26 2221008 Fax: +94 262222566

Board of Investment Level 24 &26 West Tower World Trade Centre Echelo Square Colombo 01 Sri Lanka Tel : +94 11 2434403 Fax: +94 11 2447994 E -mail: [email protected] Website: www.investsrilanka.com

Ministry of Livestock and Rural Community Development 45, St. Michael’s Road, Colombo 03 Sri Lanka Tel : +94 11 2541369, 2338278 Fax: +94 11 2328117 E -mail: [email protected] Website: www.livestock.gov.lk

Central Environmental Authority 104, DenzilKobbekaduwaMawatha Battaramulla Sri Lanka Tel : +94 11 2872359 Fax: +94 11 2872608 E -mail: [email protected] Website: www.cea.lk

Department of Animal Production and Health P. O. Box 13, Getambe, Peradeniya Sri Lanka Tel : +94 81 2388184, 2388189,2388337 Fax: +94 81 2388619 E -mail: [email protected] Website: www.daph.gov.lk

Department of Forest Conservation 82, “Sampathpaya” Rajamalwatta Road, Battaramulla Sri Lanka Tel : +94 11 2866631- 2 Fax: +94 11 2866633 Department of Registrar of Companies 400, D R WijewardenaMawatha Colombo 10 Sri Lanka Tel : +94 11 2689208, 2689209 Fax: +94 11 2689211 E -mail: [email protected]