1st DraftPre-Feasibility Study
FRUIT AND FOREST PLANT NURSERIES
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABADMINISTRY OF NATIONAL FOOD SECURITY AND RESEARCHGovernment of Pakistanwww.parc.gov.pkJanuary 2014Contents1DISCLAIMER42PURPOSE OF THE DOCUMENT43INTRODUCTION TO SCHEME54EXECUTIVE SUMMARY55BRIEF DESCRIPTION OF PROJECT65.1Tools & equipments75.2Technical Feasibility75.3Green Shed75.4Propagation85.5Irrigation85.6Cultivation85.7Environmental Aspects105.8Project Benefits105.9Location105.10Market Analysis115.11Risk analysis116CRITICAL FACTORS127INSTALLED AND OPERATIONAL CAPACITIES128PRODUCTION PROCESS FLOW129PROJECT COST SUMMARY129.1PROJECT ECONOMICS139.2PROJECT FINANCING139.3PROJECT COST139.4RAW MATERIAL REQUIREMENTS149.5HUMAN RESOURCE REQUIREMENT149.6REVENUE GENERATION149.7WORKING CAPITAL REQUIREMENTS14
LIST OF TABLES
Table 1 Project Economics13Table 2 Project Financing13Table 3 Capital Investment for the Project13Table 4 Cost of Material14Table 5 Human Resource Requirement14Table 6 Project Economics per year15Table 7 Working Capital Requirement15Table 8 Key Assumption15Table 9 FINANCIAL STATEMENT in PKR17
DISCLAIMER This information memorandum is to introduce the subject matter and provide a general idea and information on the said subject. Although, the material included in this document is based on data/information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on an as is where is basis without any warranties or assertions as to the correctness or soundness thereof. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision; including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information.PURPOSE OF THE DOCUMENT 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, production, marketing, finance and business management. The purpose of this document is to facilitate potential investors in Establishment of Nurseries for Fruits and Forest Plants by providing them a holistic as well as a micro view of the business with the hope that such information as provided herein will help the 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 thumbs of 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 its successful management. Apart from carefully studying the whole document one must consider critical aspects provided later on, which form basis of any Investment Decision.INTRODUCTION TO SCHEME Prime Ministers Youth Business Loan program , for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL). Small business loans upto 2 million with tenure up to 8 years, inclusive of a 1 year grace-period 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). EXECUTIVE SUMMARY The project of Nurseries Business will include the production and supply of new and best available fruit varieties along with Forest collection. The proposed business will start at an area of 8 kanal (160 Marla) that can further be increased with the expansion of the business during later years. It is proposed to be located at areas where climate, soil, temperature are favorable along with better distribution network to the major markets and potential consumers. Patoki in Punjab is the major hub for nursery business in the country for all varieties and plants. For small scale level the nurseries can be managed at every part of the country to meet the local requirements in different localities. In urban areas mostly ornamental and fruit plants are demanded, whereas, in rural areas the utilization of fruit, forest and vegetable is according to the farmers interest. The proposed project will provide direct employment to 05 fulltime people along with required workforce during time to time as per requirements and keeping in view the seasonal working.Product(s) include Fruit, Forest, Ornamental Plants and vegetable nurseries.1. Area Required approximately 8 kanal 2. Total Cost Estimate is Rs. 2.27 million with fixed investment Rs. 1.2 million and working capital of approx Rs. 1 millionGiven the cost assumptions IRR and payback are 76% and 3.5 years respectively the most critical considerations or factors for success of the project are; 1. Strong networking with other nursery growers2. Best varieties of nursery plants
BRIEF DESCRIPTION OF PROJECT Nursery Business will be used to meet the growing need of best varieties of fruit, forest ornamental plants and vegetable seedlings. The nursery industry is a very wonderful and exciting business. The production of plants for profit has the potential of providing many personal and financial rewards. However, as with many other farming enterprises that appear to be very simple on the surface, the nursery business is very complex and requires a great deal of knowledge and skill not only in production, but also in labor management and marketing. The nursery industry is very diverse. It is a business, and like any other business, the probability of success depends on imagination, determination, planning, and good management of the five major resources.Nursery producers utilize one or more of the following production systems: field, container, and pot-in-pot. I. Field production involves planting of seeds and cutting directly in the ground and then harvesting them either as bareroot or balled-and burlapped (B&B) material and sold as bareroot material or transplanted and sold in containers.II. Container production entails growing plants in containers filled with soilless growing media and placed in established production areas on the ground or on benches inside a greenhouse or similar protective structure. III. Products will be grafted plants of tropical subtropical and deciduous fruit plantsIt is best to concentrate on only one aspect of production (propagation, container, field, Pot-N- Pot) when first getting into the business consider buying liners until the business is running smoothly and only then consider producing some of your own liners, if thought to be advantageous. However, one could start a liner nursery and concentrate on that aspect of the business and sell liners rather than landscape size plants. Marketing is an extremely important part of the nursery business and should be given equal status and attention to production. Marketing efforts should begin as soon as the commitment has been made to start a nursery business. Producers should begin to attend nursery meetings, trade shows, retail and landscape contractor meetings, during the first year of production, if not before. Proximity to other nurseries can be an advantage. Through cooperative buying, marketing, shipping, and sharing of technology and equipment, costs can be reduced. A common practice among nurseries that are close is to pool plants to make up shortfalls in numbers, sizes or species to fill orders.There are three major areas in which nursery producers compete: price, quality and service (delivery). It is very difficult to compete with larger nurseries on production costs. Therefore, new competition must strive to produce higher quality plants and provide better service. Another area in which smaller nurseries can compete is by doing something a little different in marketing or in inventory. Smaller nurseries can fill a niche market by producing specialty nursery crops. These are crops that are not in large enough demand to warrant high volume production or plants that require special skills and handling.Tools & equipments Simple tools & equipments are required to carry out the activity. Pickaxe: for breaking up hard and stony ground.Hoe: for loosening the soil.Shovel: for moving earth, sieving soil, and mixing soil.Rake:for breaking up and levelling the soil.Sieve (channi): for sifting soil for the seedbeds and pottingFunnel: for filling pots with soil mixture.Scoop: for filling and compacting soil in pots.Watering can: for watering seedlings.Wheelbarrow: for transporting potting soil, filled pots, tools, seedlings, etc.Pruners: for pruning the roots that grow out of the pots.Germination tray: for germinating small quantities of seed.Pointed sticks: for weeding seedbeds and potted stock.Tools for pricking: for lifting germinated seedlings into pots Water pipe:for irrigation Technical Feasibility Technical feasibility takes into account whether the required technology is available or not and whether the required resources are available in terms of manpower and equipment. A successful nursery producer needs knowledge of plants, soils, fertilizers, pesticides, irrigation, Tools, pruning, harvesting methods, overwintering techniques, packing practices, etc. It is not just casting seed to the wind and watching the trees and profits grow.Green ShedA green shed is usually an outdoor open structure with primary purpose of providing shade. It is used to modify the environment from protecting from hot, reducing the intensity of sunlight through lowering temperature and maintaining the humidity. It is also used for protection against the cold during winter season by covering it with a plastic sheet. Therefore the location of this green shed should be selected accordingly. Factors such as amount of sunlight, nearby buildings and tree, and the direction of wind should be consider at the time of construction of green shed facility. The size of green shed depends upon the requirements. No specific width and length matter. The height of the green shed will depend upon the length and width. Structure of the green shed can be made with wood (bamboo etc), Metal (steel, Iron and Aluminium) and PVC and G.I Pipes. The most common structures in Pakistan are made with steel pipes of with G.I pipes or a mix of G.I and Iron. Low, medium and high tunnel are used in nursery business. Low tunnels (approx 1meter high) are used, while medium sized (approx 2 meter) and high tunnel (approx 3meter) are used mainly for propagation and storage of plants and protection from heat and frost.
Propagation The shed will be used to propagate seedlings. Seedlings also will be grown in seedling bags in the shade covered area and the open nursery. Propagation of fruit tree crops, hard woods and forestry species will involve field investigations to identify and select good sources of plant seeds for collection and propagation in seedling bags in the open nursery. Propagation of fruit tree crops also will involve grafting techniques to produce seedlings with desired qualities. Planting media will include commercial potting mixes for vegetable seedlings and suckers. Irrigation The open nursery will be irrigated by a ground sprinkler system while the shade covered area will be irrigated by elevated sprinklers attached overhead to the shade structure. A misting propagator will be installed in the screen house. The irrigation system will be gravity-fed at a pressure of approximately 40 psi from a spring at 200 feet above the site. Cultivation The green shed will provide an environment which is free from insects and other vectors. Weed control in the shade house and open nursery will be affected by use of polypropylene ground cover plastic. Fertilizer will be applied through mixing in the medium. Insecticides will be applied according to manufacturers specifications and the growing conditions. Plants typically will be ready for sale at the appropriate age and height for transplanting depending on the specific crop, and will be sold either as rooted plugs or in seedling bags. .
Environmental Aspects The environmental aspects of the plant nursery will be of priority importance in the development of the project. All steps will be taken to ensure that the land clearing and construction work takes place in Project Benefits The benefits of the proposed plant nursery will include the following: 1. Introduction of improved varieties of selected plants with higher yield, resistance to disease and lower mortality rates 2. Reduced time and resources spent by farmers in self-propagation of planting material 3. Establishment of efficient and modern plant propagation centre 4. Availability of high-quality planting material on consistent and predictable basis allowing farmers to plan production LocationThe proposed business can be done in all over the country where fruits, forest are grown. However, the location should be selected on the basis of nursery size and keeping in view the minimum risks associated with infrastructure development to production level and from production level to marketing and distribution mechanism. Site selection and layout are very important in the early stages of the planning process. Your choices will directly affect your success in growing and selling plants. When purchasing/ leasing on rent, you should come prepared with questions. Prioritize your list of requirements based on what site characteristics are the most difficult and costly to repair after you have purchased the land. Do not purchase land or take on lease, blindly because that will lead to greater cost, reduced plant quality, increased product losses, and reduced profit. For small level business in which some plants are procured from outside and some are grown at own capacity. The location should be near the main highways, city area and already existing nursery market.Location of your nursery may be predetermined based on availability of property or for personal reasons. Alternatively, you may be free to choose a location that best suits your needs and goals. In either case, your location choice will directly affect your decisions on marketing, employee hiring, and future expansion.In selecting a location you should consider proximity to other nurseries, to major cities, and to highways. Other factors to consider include availability of transportation facilities, distance to market, competition, availability of reliable labor (full-time, part-time, and seasonal), and availability of inexpensive land for future expansion. (You should know that locating near other nurseries may be mutually beneficial for small operators by providing markets for specialty items, sharing transportation services, and increasing the frequency of buyer visits.) Yet another consideration in choosing a location is the present and future regulatory status of the area (e.g., zoning, taxation, labor relations, environmental issues, and product inspections).Market Analysis Orchard growers, small, medium and large scale farmers along with huge local markets in Karachi, Lahore and Islamabad for ornamental plants are the targeted markets for the nursery business. Nursery owner must analyze and organize his or her own marketing channels, develop a sales program, prepare the product for distribution, extend credit, and make collections. There are many resources available through bookstores and libraries which provide tips on marketing and business management techniques. Five possible approaches to defining your market and customers are:1. Define the types of customers within your target market (average salary, average number per household) based on census and local Chamber of Commerce data;2. Determine customer preferences for products and services through questionnaires and by investigating the local competition;3. Use local and national industry association data and commercial publications to determine market trends;4. Anticipate future preferences on the types and number of plants to grow; and5. Promote plants which you or other colleagues consider outstandingRisk analysis Compared to many agricultural crops, greenhouse or nursery crops offer the opportunity to produce a fair amount of income on small acreage. With this income potential, however, come sizable risks. Risk results from the inability to predict the future accurately. Sources of risks that may affect the growers income are production, marketing, financial, legal, environmental, and human resource risks. Production risk concerns variation in output arising from many uncontrollable events such as weather (wind, rain, hail, etc.) insects and pests, technical challenges, diseases, input quality and availability. Fire, theft, and other casualties are also sources of production risk. Marketing risk concerns price risk and the availability of markets. Price risk is related to the variability of the price of commodities or the price of inputs, and to unanticipated forces that lead to dramatic changes in retail and wholesale prices. Financial risk has three basic components: interest rate risk, liquidity, and solvency. Interest rate risk concerns the cost of short-term, intermediate, and long-term debts. Liquidity concerns the ability of a business to pay its cash obligations in a timely fashion. Legal and environmental risk results from changes in policies and regulations that affect greenhouse and nursery business. For example, changes in government rules regarding the use of pesticides, tax, trade, environmental, or credit policy may alter the cost of production. Human resources risks may result from events associated with greenhouse operators and their families, professional consultants, and employees (e.g., theft, accidents, death, divorce, injury, seasonal labor needs, or poor health of key personnel). CRITICAL FACTORS Individuals considering entering the nursery business need to carefully consider the following factors: 1. Networking with other growers and farmers from all over the country would be necessary to meet any excess requirement or shortfall 2. Consistent quality of plants with complete knowledge of plant variety 3. Availability of skilled manpowerINSTALLED AND OPERATIONAL CAPACITIES For this project it is assumed that the production will start from the very first year for the products like pots, plants grown through cuttings, varieties along with purchases from other whole salers and propagators.PRODUCTION PROCESS FLOW
Basis Infrastructure
Plant and Variety Selection
Development and Growth
Distribution
Fruit Plants Nursery Plants Forest Plants Nursery PlantsPROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Nursery Project under the Prime Ministers Youth Business Loan program. Various cost and revenue related assumptions along with results of the analysis are outlined in this section.PROJECT ECONOMICS All the figures in this financial model have been calculated for Nursery Production annual production of around 20,000 Plants. The following table shows internal rate of return and payback period. Returns on the scheme and its profitability are highly dependent on quality of plants and selection of varieties, suitable location, good farming practices and availability of trained staff. The project will not be able to cover the potential demand of consumers and recover payments, if these factors are not efficiently managed and will also lead to increased operating cost.Table 1 Project EconomicsDescriptionDetails
Net Present Value (NPV)Rs. 3,128,750
Benefits Cost Ratio (BCR)1.81
Internal Rate of Return (IRR)40%
Payback Period (years)3.41
PROJECT FINANCING Following table provides details of the equity required and variables related to bank loan; Table 2 Project FinancingDescriptionDetails
Total Equity (10%)Rs. 244,970
Bank loan (90%)Rs.1,982,030
Mark up to borrower (per annum)8%
Tenure of Loan (Years)8%
Grace Period (years)1
PROJECT COST Following requirements have been identified for operations of the proposed business. Table 3 Capital Investment for the ProjectRequired CapitalAmount
2 Green houses 3000 SFT each500,000
Water Storage Tank10,000
Pots45,000
Equipments20,000
Water Bore125,000
Peter Pump100,000
Office and Equipments150,000
Misc. Expenses30,000
Total Capital Cost980,000
RAW MATERIAL REQUIREMENTSTable 4 Cost of MaterialItemUnit Qty Rate (Rs) Amount
Land (Leased / Rental basis) 50,00050000
Plants No2000020400,000
Manure Trolley15200030,000
Special SoilTrolley5200010,000
Polythene Bags/Trays/PotsNo100,000
Total 590,000
HUMAN RESOURCE REQUIREMENTTable 5 Human Resource RequirementDescription Nos. Salary/employee/month
Expert125,000
Skilled Labour 220,000
Total per month35,000
Total per year420,000
REVENUE GENERATION Sale of fruit and forest plant will mostly be during mid January to end of March and in august during monsoon period in some parts of the country. Vegetable nursery plants will be sold during rabi and kharif period while ornamental plants can continue throughout the year.WORKING CAPITAL REQUIREMENTSIt is estimated that an additional amount of approximately Rs. 298,662 will be required as cash in hand to meet the initial working capital requirements during operations. The requirement is based on the utilities, salaries, raw material inventories and miscellaneous expense for at least three months. The following table gives the break up. Table 6 Project Economics per yearProducts Unit Sales Price (Rs./Unit) Amount (Rs)
Fruit Plants (4 kanal)15,00050750,000
Forest plants (4 kanal)
1. Saplings80,000151,200,000
2. Cuttings20,000240,000
Total Sale in second year with full capacity 1,990,000
995,000
Table 7 Working Capital RequirementItemsMonths Monthly Charges (Rs.)
Utilities 612,000
Salaries 6210,000
Miscellaneous Expense 615,000
Total 237,000
Table 8 Key AssumptionParticularsAssumption
Sales Price Growth Rate4% per year
Increase in cost of raw material5% per year
Increase in utilities5% per year
Debt/Equity Ratio90:10
Loan Period8 years
Grace Period1 year
Loan InstallmentsMonthly
Financial charges (interest rate)8%
Lay out plan for 8 kanal Land Area
50,000 polythene bags per kanal
3000 Medium Pots Per kanalFruit plants
1500-2000 average large Pots per kanalLarger Plants
Propagation Area
Water Storage
Raw material and Store Room
I Kanal = 20 X 273= 5460 Sq.ft
Two Green Gouses
One green house can accommodate 3000 plants Office and Front Sitting area
Display
Display
13
Table 9 FINANCIAL STATEMENT in PKRYear Capital CostInfrastructure Oper. and Maint.Plants & Raw MaterialHuman ResourceTotal CostGross Benefit Cash flowInterest Income after Interest PaymentPV CostPV Benefit
0121700059000042000022270000-2227000
105900004200001010000199000098000013107684892410100001990000
2250006195004410001085500199000090450030644759805310050931842593
326250650475463050113977520696009298253064476233789771731774348
427563682999486203119676421523849556203064476491739500301708632
528941717149510513125660222384799818773064476754309236401645349
6303887530065360381319432232801910085873064477021408979831584410
7319077906565628401385404242113910357363064477292898730391525728
8335028301895909821454674251798510633113064477568648487881469220
Technical Resource PersonsDr. Khalid Mahmood [email protected]
Dr. Imtiaz Ahmad [email protected]
