1 .

Project Summary

Name of the project Pattern dairy processing industry

Type Dairy production and processing
Location Addis Ababa
Owner of the project PLC
Year of commencement
Project period 2005-2011
Investment cost 22,715,487/31,715,487

2. Description of the project

The 2004 E.C. CSA agricultural survey report revealed that the current cattle population in
Ethiopia has reached 52.13 million of which females constitute 55.57 percent. The share of Dairy
cows from this population are 14 % (7.2 million). According to this report 98.88% are local and
the remaining are hybrid and exotic breeds.

Milk is daily produced, sold for cash and milk and milk products play very important role in
feeding the rural and urban population providing high nutritional value. Average milk
Consumption per caput per annum is estimated by scholars to be at 18 liters which is very much
lower than the African average, 37 liters. The critical problem is lack of safe and adequate supply
of fresh milk and milk products.

Favorable environment, fertile land, abundant labor force, encouraging investment policy
contributes for investment attraction in Ethiopia. Ever improving agricultural development
attributable to adoption of modern agricultural technologies is one of the facts attracting
investment for agro-processing. OROMIA region, as one of the biggest regions in the country,
hosts large size of agricultural resources. The region hosts a huge potential in livestock
development. The project is planned to be here in oromia especially nearest Addis Ababa.
3. Market Assessment

3.1 Existing Dairy Marketing System

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The current suppliers of dairy products to Addis Ababa and nearest big towns are dominantly the
dairy farms, urban and peri urban dairy farmers. A significant size of milk products like butter is
supplied from the rural households.

A survey conducted some years before indicated that the dairy processing industry produce
about 33% of total milk production and 68% of this is used for human consumption in the form
of milk, butter, cheese and yoghurt. It is estimated from urban milk production about 47% and
from peri-urban about 50% milk production is sold. The receivers are dairy cooperatives,
institutions, hotels and restaurants, and urban households.

The average selling price has now increased to 15-18 Br per liter of pasteurized milk. A study
conducted around Addis Ababa indicate that the gap between supply and demand is due to
problems on both sides; lack of accessible market for producers and absence of quality product
in some by products in the market for consumers.

The overall production and marketing system can be concluded as is Underdeveloped. The
involvement of private sector in improving the marketing system is very vital.

3.2 Dairy demand

Increasing human population, growing urbanization trends and rising household income are
leading to a substantial increase in the demand for livestock products, particularly milk and meat.
In order to meet the growing demand for milk, the production has to grow at least at a rate of 4
percent per annum as some studies suggested. Dairy demand is not satisfied. Among the
challenges that contribute for this demand gap is lack of proper marketing system apart from a
need for increasing productivity. There is no outlet even for the limited production. This is a
double sward challenge, the urban dwellers complain for lack of dairy products at reasonable
cost and the dairy cooperatives (representatives of the rural people) complain for lack of
receivers.

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Milk processing industry has shown a growing trend in the country during the last decade, The
potential demand for milk in the major nearby towns – Sebeta, Wolisso and Sululta are estimated
recommendation that stipulates an average consumption of milk over an individual life cycle is
suggested to be, 0.95 liters for age 0-14, 0.25 liters for age 15-64 and 0.5 liters for age greater
than 65 of daily need. With this assumption and basing CSA population projection of 2004.

3.3 Dairy supply

It is repeatedly stated, the existing dairy suppliers of the above towns are small holder farmers,
dairy farmer institutions, urban and peri-urban dairy farmers. The majority supply of pasteurized
milk from dairy industries and raw milk comes from urban and peri-urban dairy farmers and
milk products like butter and cheese comes from small holder farmers.

Here the owner will be supposed to set up a dairy farm of 200 dairy cows where it will supply
milk to the plant. This will make the mill to be functional throughout the year against the
possible shortages of milk during dry season .The cows in own farm are assumed to give 20 liters
per day, which are 2 litters for calf feed for 5 months and the rest 18 liters for milk processing.
The program is scheduled based on the consideration that the envisaged plant will work 315days
in a year in two shifts.

3.4. Herd mix and projection

Based on the market demand and supply analysis made below, the following projection of herd
population has been made. In addition, increases and decreases due to purchases, sale and death
of herd are anticipated. Because of careful management of herd, it has been estimated that only
five cows per year are expected to die while sale of cows will be made again when their
productivity declines beginning with sale of15 and increasing to 25, and then 40gradually as the
project gets aged.

The following herd projection is based on some major assumptions:

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1. Each cow will have a calf every year because; it will be fertile for next birth within 60
days since the previous delivery.
2. Each cow is expected to provide milk of 20 liters per day for about 10.5 months because
they are 75 to 100% cross breed. The income from dairy business is computed based on
this assumption.
3. Death rate 5%
4. Calves will be milk cows after 3 years (calves in year 1 will bear calves in year 4).
5. At 4th years of age 25 %, 5th years 50% and 8th year 100% of the milking cows will be
culled out or sold
6. 60% of the calves will be males and 40% females.

The following table shows the herd composition and projection.

Table-1 herd mix and projection

year cows calves female male Calves death Cow death/sold

0 200
1 200 200 80 120 14 each sex (death 6 cows )
2 194 194 78 116 12 each sex 5 death
3 189 189 76 113 10 >> 5 death
4 264 (174 from the 264 106 158 20 >> 5 death
original & 80 from first
year heifers)
5 337 (259 from the 337 135 202 20 >> 5 death
original & 78 from
second year heifers)
6 408 408 163 245 22 >> Culling or sell started
from this period
Source: Expert analysis of the dairy cows in consultation with the owner

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3.5 Projected Demand and Supply

Though a number of factors would contribute to the shift in demand and supply the dominant
factors to be considered here will be population growth and the increase in dairy producers’
entering as suppliers. Hence both demand and supply of the product will increase. Because
farmers will be earning a better income from sale of milk, they will obviously engage in
increasing production through inclusion of improved breeds as well as improving husbandry
practices.

The projection of consumption is kept at 2.5% increase per annum referring to some study
conducted earlier and production at 1.4%. A disaggregated demand and supply is estimated in
the following table that shows as there is still an ample demand gap to attract more agro
processors and dairy farmers. If we conservatively assume the demand for processed milk to be
40% of the total demand estimated.

4. The project /technical study

4.1 Rationale

This project is an agro-processing project envisaged to be established at near Addis Ababa. The
major reason for the establishment is the owners’ own business interest to enter the industry
seeing the wide market demand for milk and milk products in the town. Moreover, the owner of
the project also understood the potential suppliers both at urban and peri-urban areas i.e. small
dairy farms and diary cooperatives.

4.2 Project Activities

Pattern agro-processing will be essentially a dairy processing and packaging industry.

This means literally producing and receiving milk and process into different by products.

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4.2.1 Construction

Cowshed, feeding and drinking trough, milk store, feed store, water supply, delivery room,
quarantine quarter, milking room, sewage disposal ditch are some of the possible constructions
that will be built in the farm.

The cowshed will be constructed with the standard that will be able to handle 70cows at the
outset and grow up to 408 later in the sixth year. It will have a feeding trough and the water
drinking trough will be a concrete made drinking.

The other part of the construction is store that will be store for feed like concentrates and another
store will be milk and its product storage. This will be constructed in very near site to the
processing plant.

The water supply system will be a pipe source as well as dug-hole. The quarantine quarter will
be a small quarter with sufficient shed and coverage that will serve as separation unit for sick
cows, or newly bought until it is observed to be added to the herd. Milking room is one that will
help to take cows for milking. It should be very quit so that it will encourage milk yield. This is
also planned to be a size of at least that could make 6 cows to be milked at a time. Sewage
disposal ditch is the main part of the construction that will be constructed to easily dispose the
waste.

4.2.2 Herd management- The 90% milk source for processing will be from own cows. These
cowsin the project site are assumed to give 20 liters per day and on average 2 liters of milk for a
calffor 5 months are assumed. The remaining 18 liters is assumed to be supplied for the
processing. The cows will be a 75% blood level. Because of careful management of herd, it has
been estimated that only 5 cows per year are assumed to die while sale of cows will be made
again when their productivity declines. The initial herd size of 200 cows is suggested which is
economical to justify the overhead cost. The herd size will increase to about 408cattle within 6
years. There will also have veterinarian that will follow up the farm to protect some diseases like
mastitis, brucellosis and TB among the dominant milk affecting diseases and also other held

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depleting problems. The production will be with artificial insemination and the market is
available in Addis Ababa and nearest town.

4.2.3 Feed source- The main source of feed is hay, green forage from surrounding and
concentrates like oilcake, bran brewery by products, molasses, etc. The feed requirements of
dairy cow vary depending to the body weight i.e. body weight ranging 250 -400 kilograms
requires fodder dry mater 4.5 kg and green 12-15 kg, concentrates 1kg for maintenance
production 1kg per 3 kg milk.

Heifers pregnant body weight ranging 200 -300 kilograms requires fodder dry mater 3-4 kg and
green 10-12 kg, concentrates 1 kg for maintenance production 0.5kg for other purpose. Heifers
for breading body weight ranging 150 -200 kilograms requires fodder dry mater 2-3 kg and green
8-10 kg, concentrates 0.5 kg for maintenance production 0.5kg per service. The average feed of
fodder needed for 200 cows per day and year in kg is estimated to be as follows.

Table -2 Total Average Feed or Fodder for milking cows

Type of food Average consumption in Average consumption in

KG/balloon/cow/day KG/balloon/cow/year
Dry matter 1.5 547.5
Green matter 3 1095
Elephant grass 1.5 547.5
Molasses/concentrate 4 1460
concentrate 3.5 1277.5
Total 13.5 4931.5

4.2.3 Milk processing

The main task of this industry is to process milk into different products, cream, pasteurized
milk, etc. the product mix could be pasteurized milk in 0.25, 0.5 & 1 liters sachet; butter in 250
and 500 gm. bricks; yoghurt in 200-250 gm. plastic pots; cream in 200-250 gm. cones; and ayib
500gm plastic bag. In order to effect this engagement the owner will fix the processing machine
with different equipment.

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 After the fresh milk is received it is filtered and pumped into the dump tank. It is then chilled
with help of a chiller so that the growth of bacteria is minimized. On average; fresh milk
contains 4.5% fats which will be reduced to 3.5% with the help of a cream separator. The milk
will then undergo the pasteurization process. This is based on heating the milk to 75ºC and
holding at that temperature for at least 15-20 seconds. After the pasteurization process is
completed, the tanks will be cleaned. In consideration of the projected demand for pasteurized
milk, and the planned technology, the envisaged plant is set to produce 2000 liters per shift or
4000 liters per day.

4.3 .1Product marketing

The potential buyers of households living in the towns, café and restaurants, and a
considerable size will be by university students. The distribution will be through distribution
kiosks of the project, super markets and also the firms’ distribution to those that need in bulk.

5. Organization & Management

The project will have different management stakes. The general manger will be the chief
executive of the project. While staffing, proper human resource management personnel
manual will be used. There will be clear job descriptions while filling the positions.

Table-3 List of human resource proposed

S/N Position Proposed number

1 General and vice manager 2
2 Marketing department 2
3 Processing department head 3
4 Dairy development officer 3
5 Machine technicians 1
6 Administrative & finance officer 2
7 Store man or women 2
8 Operators 4
9 Janitors 10
10 Laborers 15
11 Drivers 3

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 12 Guards 4
13 Time keepers 2
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Total 53

6. Financial Analysis

6.1 Project cost

Critical assumptions
1. The average cost of liter of milk is 12Br/liter if milk collected to process
2. The investment is supposed to be financed from own equity .
3. The selling price of pasteurized milk will be 15 Br per litter
4. The total working days is assumed 315 days .
5. Depreciation is assumed to be as follows.
 Depreciation for Building =5%
 Depreciation for equipment =10%
 Depreciation for Office furniture =20%
 Depreciation for Vehicles & Machinery =20%

Table-4 Construction cost

List quantity Unit price Total cost

Milking Cow shed or 3 300000.00 900,000.00
house
Quarantine house 1 200,00.00 200,000.00
Calve house 2 300,00.00 600,000.00
Heifers house 2 300,000.00 600,000.00
Store for concentrate 1 300,000.00 300,000.00
feeds
Store for equipment 1 200,000.00 200,000.00

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 Guard house 1 30,000.00 30,000.00
Clinic 1 100,000.00 100,000.00
Office 1 200,000.00 200,000.00
Fence 500,000.00 500,000.00
Crash 40,000.00 40,000.00
Sub Total cost 2470000 3670000.00

Table -5 machinery cost

Cost items Quantity Unit Total cost(birr)

price(birr)
Set of spars(heating, 3 35,500.00 160,500.00
circulation pump, temperature
controller
Milk pasteurizing machine 2 375,345.0 750,690.00
0
Butter churner 2 152,616.0 305,232.00
0
Cheese vat for provolone 3 89,347.00 268,041.00
Cream separator 2 26,510.00 53,020.00
Sea freight 2 72,247.00 144,494.0
Isuzu truck 2 13,400.00 26,800.00
4x4 pickup 1 963,210.0 963,210.00
0
Balance instrument 1 470,000.0 470,000.00
0
Insulated water tank 2 3500.00 7000.00
Water refrigerator 1 9,000.00 9,000.00
Miscellaneous equipments 50,000.00

Sub total 3,157,987.00

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Table-6 furniture cost

Cost item Quantity Unit price Total cost

Chair 10 1000.00 100,000.00
Table 4 1500.00 6,000.00
Computer 4 15000.00 60,000.00
Printer 2 12000.00 24,000.00
Fax 1 15000.00 15,000.00
Shelf 3 1000.00 30,000.00
Safe box 1 7000.00 7,000.00
Other 20,000.00 20,000.00
Sub total 262,000.00

Table -7 human resource cost

Cost item Quantity Cost per month Total cost /year

General manager 1 10,000.00 120,000.00
Marketing department head 2 4,000.00 48,000.00
Processing department head 3 4,000.00 48,000.00
Dairy development officer 3 4,000.00 48,000.00
Administrative &finance officer 2 4,000.00 48,000.00
Store man /women 2 2,000.00 24,000.00
Machine technician 1 3,000.00 36,000.00
Operator 4 2,500.00 30,000.00
Laborer 10 1,000.00 12,000.00
Janitor 15 600.00 7,200.00
Driver 3 1,500.00 18,000.00
Guards 4 800.00 9,600.00
Employee allowance/benefit (25%) 11850 112200
Sub total 2 59,250.00 561,000.00

Table-8 running cost

COST ITEM QUANTITY COST/MONTH

Fuel &lubricants 3 150,000.00
Electric Installation 1 5,000.00
Plastic bag 20,000.00
Utilities electric &water 10,000.00
Dairy cows 200 by importing/collecting 15,000,000/6,000,000.00
Miscellaneous 10,000.00

SUB total 15,195,000.00/6,195,000.00

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Table -9 feed cost

s/n Type of food No of Consumption Average Total Total

cattle in cost/day in cost /day cost/year
kg/balloon/day kg/balloon/cow
For cattle
Dry matter 200 1.5 11 2,200.00 803,000.00
Green matter 200 3 30.00 6,000.00 2,190,000.00
Concentrate 200 4 28.00 5,600.00 2,044,000.00
Elephant grass 200 1.5 11.00 2,200.00 803,000.00
Su total 1 16,000.00 5,840,000.00
For calves
Dry matter 200 0.75 5.5 1,100.00 401,500.00
Green matter 200 1.5 15 3,000.00 1,095,000.00
Concentrate 200 2 14 2,700.00 1,022,000.00
Elephant grass 200 1 7 1,400.00 511,000.00
Su total 2 8,000.00+- 3,029,500.00
Subtotal 1&2 8,869,500.00

Table-10 summary of costs

List amount
Construction 3,670,000
Plant & vehicle cost 3,157,987
Furniture 262,000
Salary 561,000
Running cost 6,195,000 /15,195,000if cows are imported
Feed cost 8,869,500.00
total 22,715,487/31,715,487

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 Table -11 Project income

List Year 1 Year 2 Year 3 Year 4 Year 5

QUr Qur 2 QUr 1(5 Qur 2 QUr 1(5 Qur 2 QUr 1(5 Qur 2 QUr Qur 2
1(5 (5.5 month) (5.5 month) (5.5 month) (5.5 1(5 (5.5
month month) month) month month) month month)
) ) )
Amount of 432,00 528,000 419,040 512,160 408,240 498,96 570,240 696,960 727,92 889,680
pasteurized milk 0 0
Unit selling price 15 15 16 16 17 17 17.5 17.5 18 18
Total income 6,480, 7,920,000 6,704,640 8,194,560 6,940,080 8,482, 9,123,840 12,196, 13,102 16,014,24
from sale of milk 000 320 800 ,560 0
80%
Produced butter 216,00 264,000 209,520 256080 20,412 24,948 28,512 34,848 36,396 44,484
(4% of total milk 0
)
Unit selling price 120 120 130 130 140 140 150 150 155 155
Total income 2,592, 3,168,000 2,723,760 3,329,040 2,857,680 3,492, 4,276,800 5,227,2 5,641, 6,895,020
from sale of 000 720 00 380
butter
Amount of 108,00 132,000 104,760 12,804 10,206 12,474 14,256 17,424 18,198 22,242
cream produced 0
Unit selling price 70 70 75 75 80 80 85 85 90 90
Total income 756,00 924,000 785,700 960,300 816,480 997,92 1,211,760 1,481,0 1,637, 2,001,780
from sale of 0 0 40 820
cream
Total amount of 113 113 104 104 108 108 148 148 - 192
calve
Unit selling price - 4000 - 4000 - 4500 5000 - 5000
Income from sale - 452,000 - 416,000 486,00 - 740,000 - 960,000
of calve 0
Income from sale 120,00 120,000 120,000 120,000 120,000 120,00 150,000 150,000 160,00 160,000
of compost 0 0 0
Total income 9,948 12,584,0 10,334,1 13,019,9 10,735,2 13,57 14,762,4 19,795 20,58 26,030,8
,000 00 00 00 40 8,960 00 ,040 0,760 40

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6. Social and Economic Cost and Benefit Analysis

Creating employment opportunities will be one predominant economic contribution of the

project. Extension services and periodical training will be given to the surrounding communities
in addition to the employment opportunities. Electric supply from biogas and improved breed
and forage seed support for demonstration is the other benefit of the project to the local
farmers.

From the implementation of project activities during project periods the following major
outputs are expected to be realized. Market accessibility will be created in milk production localities of
project area .

Milk management and quality of raw milk will be improved through providing quality testing
materials to cooperatives which induce the payment according to quality and at the same time
hampers adulteration of dairy products.

The project will create employment opportunities for urban jobless youth and women by
participating in the dairy product marketing business. The project will contribute to the improvement of
the nutritional status of urban households through accessing the processed milk and milk products to the
consumers at every corner. The project will alleviate poverty through improving marketable milk volume
and thereby increase the income obtained from dairy sub sector.

The project through establishment of strong dairy product processing plants will improve the
quantity supply and products to all potential consumers at affordable price by promoting and

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introducing effective market distribution system. It also benefits the national economy through activating
the production and supply of qualitative domestically processed products which through time substitutes
the market import of dairy products.

7. Implementation Program
The major tasks under the diary farm development and establishment of the processing plant are
the following.

1. Develop cattle fodder crop

2. Construction of cattle waiting house, offices and others
3. Purchase and Deliver Improved cow Breeds
4. Purchase diary processing machine and related equipments
5. Recruit staff
6. Improve sales network of milk and dairy products.

9. Riske and uncertainty

 In adequate supply of dairy cattle

 Shortage of food availability
 Lack of infrastructure
 Lack of access to land
 Unstable political and social climate

10. Conclusion

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The motive for this project is the huge potential of dairy sub sector. The owner understood the
unmet dairy product demand and come up with this novel investment. The project is essentially
supposed to be processing industry but for reasons of underdeveloped market chain, it be
mandatory to incorporate own dairy farm. Though the plant capacity estimated for initial period
is 4000liters will per day. The cost benefit analysis shows the possible feasibility of the project.
The business is lucrative and the owner should start the business right soon so that it can Take
the market monopoly. Seeing the positive return from the investment the owner will also
consider expansion for
higher plant capacity.

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