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Pre feasibility Study
COLD STORAGE
(Fruit & Vegetable)
Small and Medium Enterprise Development AuthorityGovernment of Pakistan
www.smeda.org.pk
HEAD OFFICESmall and Medium Enterprise Development Authority, 6th Floor,LDA Plaza ,Egerton Road. Lahore, PakistanTel: 92-42-111-111-456 Fax: 92-42-6304926-7, Email: [email protected]
REGIONAL OFFICE PUNJAB
REGIONAL OFFICE SINDH
REGIONAL OFFICE NWFP
REGIONAL OFFICE BALOCHISTAN
6th Floor,LDA Plaza ,Egerton Road. Lahore, Pakistan
4 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT.......................................................................................................9
4.1 SWOT ANALYSIS ........................................................................................94.1.1 Strengths and Opportunities..................................................................94.1.2 Weaknesses and Threats .......................................................................9
5.1 GLOBAL PERSPECTIVE................................................................................105.2 LOCAL PRESPECTIVE ..................................................................................12
6 MARKET INFORMATION .........................................................................13
7 COLD STORAGE TYPES AND INFRASTRUCTURE..............................14
7.1 TRADITIONAL TYPE COLD STORAGE...........................................................147.2 PRE-FABRICATED COLD STORAGE..............................................................15
8 PRODUCT PROCESS FLOW......................................................................16
9 HUMAN RESOURCE REQUIREMENTS ..................................................16
Pre feasibility Study Cold Storage (Fruit & Vegetable)
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11 IINNTTRROODDUUCCTTIIOONN TTOO SSMMEEDDAA
The Small and Medium Enterprise Development Authority (SMEDA) wasestablished with the objective to provide fresh impetus to the economy through the launch of an aggressive SME support program. Since its inception in October 1998, SMEDA had adopted a sectoral SME development approach. A few priority sectors were selected on the criterion of SME presence. In depth research was conducted and comprehensive development plans were formulated after identification of impediments and retardants. The all-encompassing sectoral development strategy involved recommending changes in the regulatory environment by taking into consideration other important aspects including financial aspects, niche marketing, technology upgradation and human resource development.SMEDA has so far successfully formulated strategies for sectors including, fruits and vegetables, marble and granite, gems and jewelry, marine fisheries, leather and footwear, textiles, surgical instruments, urban transport and dairy. Whereas the task of SME development at a broader scale still requires more coverage and enhanced reach in terms of SMEDA’s areas of operation.Along with the sectoral focus a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of viable business opportunities for potential SME investors. In order to facilitate these investors, SMEDA provides business guidance through its help desk services as well as development of project specific documents. These documents consist of information required to make well-researched investment decisions. Pre-feasibility studies and business plan development are some of the services provided to enhance the capacity of individual SMEs to exploit viable business opportunities in a better way. This document is in the continuation of this effort to enable potential investors to make well-informed investment decisions.
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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 various aspects of project concept development, start-up, and production, finance and business management.
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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
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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.
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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. Tubers should always be kept in the dark since very small amounts of light will gradually cause greening. Lights should not be used more than absolutely necessary. Surface greening is due to chlorophyll formation and is harmless. However, its presence in potatoes is undesirable because of marketing restrictions and the fact that at times an alkaloid called solanine increases with the chlorophyll. Solanine and other glycoalkaloids cause potatoes to have a bitter, undesirable flavor. Greening develops slowly in the light at 40F or below but develops rapidly at 68F.
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. Early potatoes free from serious bruising and decay can sometimes be held 4 to 5 months at 40F for table use
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if they are cured 4 or 5 days at 55 to 65F to heal wounds before storage. However, early crops should usually be sold immediately because of poor storability and typically high early season prices.
Most late potatoes are stored. Storage temperature depends on crop use. A relative humidity of 90 to 95% is typically recommended regardless of temperature regimes.
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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.
As far as the scenario of food losses in Pakistan is concerned, Pakistan produces a variety of fruits and vegetables like potato, apple, mangoes, dates, banana, cherries, apricots, pomegranates, peas, carrots, etc. Pakistan's total annual production of fruits amounts to nearly 6 million tons and that of vegetables to approximately 5.3 million tons. However, it is estimated that in Pakistan 25% of fruits & vegetables produced each year are lost because of poor harvest conditions. This loss if calculated approximately amounts to 2.7 million metric tons and its estimated local market value reaches somewhere near US $ 522 million. The major reasons for this loss are careless harvesting, rough handling, inadequate transportation, and storage facilities. If we only look at the losses due to lack of storage facilities, it alone reaches 1.24 million metric tons, which values to nearly US $ 239 million1.
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.
1 Source: FBS and FAO
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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.
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For retail sales, location of the cold storage must be near a major road, and the area must have adequate parking space. Proposed locations for cold storage could be from Kasur to Depalpur as potatoes are grown on this belt, apples are brought from Quetta & Kinnus are brought from Sargodha. 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
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.
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A scheme is launched by Trade Development Authority of Pakistan, it is called, Cool Chain and Cold Storage for horticulture Products will come into operation with immediate effect. Business concerns selected for financial assistance under this scheme will be allowed following incentives.
Mark-up cost of loans obtained by business concerns for establishment of cool chain infra-structure will be picked-up by the Trade Development Authority of Pakistan through the Export Development Fund (EDF) up to a maximum of 8% or 50% (whichever is less).
2 Pakistan horticulture and export board, harvest calendar3 Pakistan horticulture and export board4 Trade Development Authority of Pakistan
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The proposed cold storage facility has a maximum storage capacity of storing 60,000bags of potato or 180,000 crates of apple at any given time. It will be operational forpotato storing period from February to July and will be available for apple/ kinnu storage 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.
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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 pre-operational 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.
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In the proposed cold storage there would be a capacity to store 60,000 bags of potato from February to July and 180,000 apple/kinnu crates would be stored in December & January.
Following are some of the major factors, which contribute towards the success of the potato cold storage. Better insulation technology and compartmentalization of cold storage as
compared to the rest of the cold storages in Pakistan. Energy efficient construction hence low operating/fuel costs due to efficient
insulation. Compartmentalization i.e. compartments has the provision of storing different
commodities at their respective temperatures.
Pre feasibility Study Cold Storage (Fruit & Vegetable)
It is recommended to develop a chain of dealers who put potato bags and apple/ kinnu crates on regular basis. The dealer deposits a guarantee in the shape of cash security, keeping in view the number of bags/ crates taken out from cold storage on agreed terms. In case the dealer is unable to pick the agreed number of bags/ crates on a particular day, the amount is deducted from his security.
For earning higher profits it is recommended to the seller that he should send fruit & vegetable to Karachi, Lahore & Islamabad for sale.
A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture. Strengths and weaknesses are internal to the company whereas the opportunities and threats originate from the external environment. A SWOT analysis is usually performed early in the project development process, and helps organizations evaluate the environmental factors and internal situation facing a project.
4.1.1 Strengths and Opportunities
Fairly 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.
4.1.2 Weaknesses and Threats
Irregular government policies e.g., abnormal tax increase. Fluctuation or unexpected increase in electricity tariff.
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Failure of potato crops due to natural calamity. Ruthless competition by other business adversaries.
Worldwide average food grain losses have been put at 5 percent. In the developed countries, losses have been generally at 1 percent while 10 to 30 percent losses have been reported for developing countries5. Increase need for potato cold storages is because of increase in the demand of potatoes through out the world. It is caused by following factors:
Increase in purchasing power Increase in population. Mishandling and wastage of fruits & vegetables.
The world potato sector is undergoing major changes. Until the early 1990s, most potatoes were grown and consumed in Europe, North America and countries of the former Soviet Union. Since then, there has been a dramatic increase in potato production and demand in Asia, Africa and Latin America, where output rose from less than 30 million tonnes in the early 1960s to more than 165 million tonnes in 2007. FAO data show that in 2005, for the first time, the developing world's potato production exceeded that of the developed world. China is now the biggest potato producer, and almost a third of all potatoes is harvested in China and India.
Harvested area Quantity Yeildhecters tonnes Tonnes/hecters
Africa 1,541,498 16,706,573 10.8Asia / Oceania 8,732,961 137,343,664 15.7Europe 7,473,628 130,223,960 17.4Latin America 963,766 15,682,943 16.3North America 615,878 25,345,305 41.2World 19,327,731 325,382,445 16.8
Asia and Europe are the world's major potato producing regions, accounting for more than 80 percent of world production in 2007. While harvests in Africa and Latin America were far smaller, production was at or near record levels. North America was the clear leader in yields, at more than 40 tonnes per hectare.
Population Consumption Total food (t) Kg per capita
Africa 904,388,000 12,571,000 13.9Asia / Oceania 3,934,644,000 94,038,000 23.9Europe 739,203,000 64,902,000 87.8Latin America 562,270,000 11,639,000 20.7North America 330,400,000 19,824,000 60.0World 6,484,792,000 282,974,000 31.3
Asia consumes almost half of the world's potato supply, but its huge population means that consumption per person was a modest 24 kg in 2005. The heartiest potato eaters are Europeans. Per capita consumption is lowest, but increasing, in Africa and Latin America.
Asia and Oceania includes the world's potato giant, China, which accounts for more than 20 percent of both the global potato-growing area and the world potato harvest. Several other Asian countries - Bangladesh, India, the Islamic Republic of Iran, Japan and Turkey - also figure in the world's top 20 potato producing countries.
8 FAOSTAT9 FAOSTAT
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Some of the world's best yields are recorded in New Zealand - on average, around 50 tonnes per hectare. Total harvested area is 8 732 961 ha, total quantity produced is 137 343 664 t, yield 15.7 t/ha.
Sr.no. Countries1. China2. India3. Islamic Rep. of Iran4. Bangladesh5. Turkey6. Japan 7. Pakistan 8. Kazakhistan9. Nepal 10. Korea DPR
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Although potato was grown on the Indian subcontinent from the late 16th or early 17th centuries, at Pakistan's foundation in 1947 cultivation was restricted to a few thousand hectares and total annual output was less than 30,000 tonnes.
In the decades since independence, the aalu has become the country's fastest growing staple food crop. Thanks to strong gains in cultivated area and average yields - both made possible mainly by irrigation - output rose between 1995 and 2007 from one million to a record of more than 2.6 million tonnes. The lion's share of potato production comes from the Punjab, where spring and autumn crops account for 85 percent of the national harvest.
Apart from some subsistence growers in the north, most Pakistani farmers produce for urban markets rather than household consumption, and the potato has become a significant source of rural income (worth some $300 million in 2005). At present, annual intake is around 11 kg per capita.
In year 2007, Pakistan total harvested area is 131,900 ha, quantity produced is 2,622 300 t, yeild is 19.9 t/ha11. Approximately 12 percent of the 13.67 million tons of annual production of fruits and vegetables in the country is lost due to primitive and poor techniques of handling between farms and the end-consumers In Pakistan, out of 13.674 million tones of fruits and vegetables produced annually, it is estimated that about 35 to 40 percent are wasted. This wastage creates the demand for proper handling through cold storages12.
10 FAOSTAT11 FAOSTAT12 Trade Development Authority of Pakistan
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There are total 533 cold storages in Pakistan which have installed capacity of 892,000 tons13 out of which 104 units of cold storage/ ice factory having installed capacity of 1,905,907 bags/ crates, 25,208 blocks/ day are in proposed location Okara.14
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.
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Following are the potential customers of cold storage: Growers Traders
13 Dr. Khalid, Chairman of marketing & agri business, University of agriculture, FSD14 pre- investment study on Okara district 2006, directorate of industries Punjab, Lahore15 Pakistan horticulture development & export beaurue16 www.jamals.com , www.lcci.com.pk
Pre feasibility Study Cold Storage (Fruit & Vegetable)
This type of cold storage is being used in many areas of Pakistan. The construction include following components:
Civil workTwo 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.
17 www.jamals.com , www.lcci.com.pk
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InsulationThe 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.
a. Ammonia Based System This 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.
b. Freeon Based SystemThis 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.
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 insulatedcorrugated 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.
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The working of the Cold Storage will be as follows:
3. Insulation Option 1 (Thermopore) Option 2 (Polyurethane)Area (Sq. ft) 61,884 61,884Insulation Rate 75 300Cost 4,641,300 18,565,200Mesh and Plaster rate 50 Not RequiredCost 3,094,200 Not RequiredSub Total 7,735,500 18,565,200
4. Generator 3,000,000 3,000,000 Total Plant & Machinery
43,835,500 60,265,200
Keeping in view the requirement and project cost option 1 has been selected for potato cold storage. The further calculations have been done accordingly.
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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. The site for proposed business place could be on Kasur to Depalpur belt. Approximately 1 Acre of land would be required for this cold storage.
Pre feasibility Study Cold Storage (Fruit & Vegetable)
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, WAPDA meter room etc.
1,000,000
Total 24,095 24,914,000Design & Consultancy Charges @ 3% 747,420 Total Infrastructure Cost 25,661,420
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The tentative lay out of the proposed building is as follows:
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The cost of the project will be as follows:
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Head Cost (Rs.) Land 2,650,000 Building 25,661,420 Plant & Machinery 43,835,500 Office Equipment 100,000 Furniture & Fixture 60,000 Pre operational expenses, Utilities Charges, & contingencies 2,908,000 Total Assets 75,214,920 Working Capital Working capital required for Salaries & other expenses 656,000 Stock & Inventory 6,480,000 Total Project Cost 82,350,920
The estimated time frame for the completion of the project is eight months.
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Table 13-1: Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Revenue 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
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Store's Capacity Bags 60,000 Capacity available on rental basis Bags 40,800Stock of own purchased potatoes Bags 7,200First Year Capacity for Potatoes (Rental) % age 85.00%Percentage of own Potato Bags % age 15.00%Annual Growth rate % age 10.00%Maximum Capacity % age 95.00%