73.

PROFILE ON PRODUCTION OF CANDY

73-2

TABLE OF CONTENTS

PAGE

I.

SUMMARY

73-3

II.

PRODUCT DESCRIPTION & APPLICATION

73-3

III.

MARKET STUDY AND PLANT CAPACITY

73-4

A. MARKET STUDY

73-4

B. PLANT CAPACITY & PRODUCTION PROGRAMME

73-7

MATERIALS AND INPUTS

73-7

A. RAW & AUXILIARY MATERIALS

73-7

B. UTILITIES

73-8

TECHNOLOGY & ENGINEERING

73-9

A. TECHNOLOGY

73-9

B. ENGINEERING

73-10

MANPOWER & TRAINING REQUIREMENT

73-11

A. MANPOWER REQUIREMENT

73-11

B. TRAINING REQUIREMENT

73-12

FINANCIAL ANALYSIS

73-13

A. TOTAL INITIAL INVESTMENT COST

73-13

B. PRODUCTION COST

73-14

C. FINANCIAL EVALUATION

73-15

D. ECONOMIC BENEFITS

73-16

IV.

V.

VI.

VII.

73-3

I.

SUMMARY

This profile envisages the establishment of a plant for the production of candy with a capacity
of 500 tonnes per annum.

The present demand for the proposed product is estimated at 2,112 tonnes per annum. The
demand is expected to reach at 3,516 tonnes by the year 2020.

The plant will create employment opportunities for 14 persons.

The total investment requirement is estimated at Birr 9.89 million, out of which Birr
6.94 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 28 % and a net present
value (NPV) of Birr 8.36 million discounted at 8.5%.

II.

PRODUCT DESCRIPTION AND APPLICATION

Candy is shaped pieces of cooked and flavored sugar, syrup, etc usually with coffee, mint, fruit
juices, milk, nuts, etc added. It is recognized throughout the world as an important ingredient of
a balanced diet.

Candy is well known in replacing the energy which the human body

continuously spends through physical exertion.

Now a days any one of the society enjoys the sweet taste of candy specially children of both
urban and rural areas. At present, there is only few candy producing units in Ethiopia. The
majority of the demand is satisfied with the imported product. The major raw materials are
sugar and water. Production process is simple which involves boiling of sugar with water until
it concentrates, adding flavors, and then forming candy, packing and marketing.

73-4

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1. Past Supply and Present Demand

The demand for candy or sugar confectionaries is met both through local production and
imports. Nearly all the producers are located in Addis Ababa, and according to Region 14
Administration Industry and Handicrafts Bureau-Report on the survey of Private Small and
Medium Scale Industries, 1993, they used to number 24 at the time of the survey and their
reported and combined annual production was 1118 tons, according to the same source. A
more recent publication, Addis Ababa city Government Trade, Industry & Tourism Bureau,
Statistical Bulletin No. V, 2002, puts their number at 21. Although it is stated that their
combined capital amounts to birr 6.5 Million, no information is available regarding production
quantity.

Knowledgeable sources, however, indicates

that owing to the rising price of sugar and

competition from cheaply priced imports, most local producers are scaling down their
operations while some have entirely closed and returned their licenses. Termination of the
sugar quota privilege which the producers were enjoying formerly is also believed to be one of
the factors that caused contraction of local production of candy.

The data obtained from CSAs annual survey of the large and medium scale manufacturing and
Electricity industries, however, indicates that domestic production of candies during the period
of 1991 1997 E.C was on average, 1306 tons.

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Table 3.1
APPARENT CONSUMPTION OF CANDY (SUGAR CONFECTIONERY)

Domestic
Year

production

Import

2000

1433

350.23

2001

1440

468.52

2002

1405

553.57

2003

992

764.6

2004

1460

763.24

2005

1103

694.59

Average

1306

599

Source: Customs Authority, External Trade Statistics, Annual Issues.

Scruting of Table 3.1 also reveals that import of candy/Sugar confectionary, which amounted
about 350.23 tons in 2000, witnesses an increase amounting to 694.59 tones in 2005.

The annual average g growth rate of candy imports during the period under consideration was
16%. Assuming this growth rate will be maintained, the present level of imports is estimated to
be about 806 tons. When this estimate is added to the local production estimated earlier, total
apparent consumption would be about 2112 tons, which could fairly approximate present
effective demand.

2.

Projected Demand

The consumption of sugar confectionaries in the country is bound to increase with an increase
income of the population and development of taste to the products. In projecting the demand
for the product an average annual growth rate of 4% is employed which is equivalent to the
population growth rate (see Table 3.2).

73-6
Table 3.2
PROJECTED DEMAND FOR CANDY

3.

Projected

Local

Demand

Demand

Capacity

Gap

Year

(tonnes)

(tonnes)

(tonnes)

2008

2196

1300

896

2009

2284

1300

984

2010

2375

1300

1075

2011

2470

1300

1170

2012

2569

1300

1269

2013

2672

1300

1372

2014

2779

1300

1479

2015

2890

1300

1590

2016

3006

1300

1706

2017

3126

1300

1826

2018

3251

1300

1951

2019

3381

1300

2081

2020

3516

1300

2216

Pricing and Distribution

The retail price of candy varies between Birr 20 and Birr 25 per kg depending on the country of
origin and types of additives and flavorants. Allowing a 30% margin for wholesalers and
distributors the product could be sold at a price ranging from Birr 16 to Birr 18 per kg.

73-7
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the market study, capital requirement and minimum economy of scale, the annual
production capacity of the envisaged plant is 500 tones of candy. This capacity will be attained
by working single shift a day having eight working hours and 300 working days per annum.

2.

Production Programme

The annual production programme is formulated on the basis of the market forecast and
selected plant capacity. It is assumed that Production will commence at 75%, and then will
grow to 85% and 100% in the second year, and the third year and then after, respectively.
Detail production programme is shown in Table 3.3 below.

Table 3.3
PRODUCTION PROGRAMME

Sr.
No

Unit
Description

1.

Candy Production

2.

Capacity utilization rate

Production Year
2008

2009

2010-2020

Tones

375

425

500

75

85

100

IV.

MATERIALS AND INPUTS

A.

RAW AND AUXILIARY MATERIALS

Various types of candies do exist depending on the ingredients used and manufacturing process
employed. The envisaged plant will produce hard candy which can be identified by their hard
brittle texture.

The major raw material used to produce hard candy is sugar. Auxiliary

materials added to sugar are liquid glucose (Corn syrup), edible colors, and flavors, wrapping
and packing materials. Liquid glucose is used as a "doctor". Without it, would crystallize and

73-8
turn in to a lump of cloudy sugar, shortly after it was poured. Annual consumption of raw and
auxiliary materials at full production capacity is given in Table 4.1 below. The total cost of raw
material is estimated at Birr 3,845,000.

Table 4.1
RAW AND AUXILIARY MATERIALS REQUIREMENT AND COST

Sr.

Cost, ['000 Birr]

No.

Description

Qty

FC

TC

Sugar (ton)

550

3,575

3,575

Glucose

Req.

120

120

Edible colors

"

30

30

Flavors

"

30

30

Wrapping & packing materials

"

90

90

3,665

180

3,845

Grand Total

B.

LC

UTILITIES

Electricity, water and fuel oil are the utilities required by the envisaged plant. Details of
utilities are shown in Table 4.2. The total cost of utilities is estimated at 1,413,635.6.

Table 4.2
UTILITIES REQUIREMENT AND COST

Sr.
No.
1

Description
Electricity

Total Cost,

Unit

Quantity

kWh

43,500

19,035.6

Birr

Water

47,000

258,500

Furnace oil

Lit

210,000

1,136,100

Grand Total

1,413,635.6

73-9
V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Production Process

Broadly speaking there are two processes for making candies- the conventional process which
heats materials, and the one for boiling down through reduced pressure (vacuum system). The
latter process is proposed for the envisaged project since it is modern and rationalized in every
aspect. The process features; small consumption of fuel, small size of plant, economization on
wages and if required more transparent candies can be produced. These features provide better
taste, long shelf life, and uniformity of quality, with mass production available.
The process is roughly divided into two units, namely, one to concentrate the material and the
other to form hard candies. The process of vacuum concentration unit is to evaporate material
under reduced temperature with reduced pressure. The candy material taken out of the
concentrator is then mixed with various additives, spices or unique flavors according to the
desire of candy makers. The mixing process requires sufficient kneading to obtain excellent
products. After kneading is sufficiently carried out, the candy is drawn out in rope shape of
determined measure by the batch roller (set with sizing roller). The drawn candy is then put
into the hard candy forming unit, where candies are made formed. The formed candies are
finally cooled down to normal temperature and charged to the packing machine. The cooling
process is carried out by a cooling conveyor, where it is also possible to check and adjust ill
formed candies. The process does not have any waste and is environmentally friendly.
2.

Source of Technology

The technology of candy production is simple. Machinery can easily be purchased from India.
Addresses of machinery suppliers are given below:1.

ALLMPA INDIA
TEL. 91-22-282511425
FAX: 28071913
E-MAIL [email protected]
A.23, BHATIA CMPD, Kandivali(w), MUMBAI - 257
India

73-10

2.

Sunita impex Pvt. Ltd.

B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment required by the envisaged plant is given in Table 5.1
below. The total cost of machinery and equipment with the envisaged capacity is estimated at
Birr 6.94 million.

Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT

Sr.

Qty.

No.

Description

(No.)

Automatic dissolving machine

Automatic vacuum concentrator (including

receiving tank
3

Cooling tables

Kneading machine

Hot table

Batch roller(set with sizing roller)

Plastic forming machine

Shifter

Three tier cooling conveyor

10

Packing machines

11

Boiler

2 set

73-11

2.

Land, Building and Civil Works

The total land requirement, including provision for open space is 1000 m2, of which 500 m2
will be covered by building. Estimating unit building construction cost of Birr 2,300 per m2,
the total cost of building will be Birr 1,150,000. The cost of land leasing is Birr 0.2 per m2, and
for 80 years land holding will be Birr 16,000. Thus, the total investment cost of land, building
and civil works will be Birr 1,166,000.

3.

Proposed Location

Candy is highly consumed in urban areas. Therefore, the candy plant should be located where
there is access to infrastructure and utilities like electricity & water. It should also be nearer to
the market. Considering this factor, it is proposed that the envisaged plant be located in Dale
woreda, Yrgalem town.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged plant requires 14 workers. The detailed manpower requirement and the
estimated annual labour cost including fringe benefits is given in Table 6.1. The total cost
of manpower including fringe benefit is estimated at Birr 126,000.

73-12
Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr.
No

Description

Req.

Salary, Birr

No.

Monthly

Annual

Plant manager

1750

21,000

Secretary

700

8,400

Accountant

900

10,800

Clerk

350

4,200

Technician Operator

2400

28,800

Store keeper

500

6,000

Purchaser/sales man

900

10,800

Driver

450

5,400

Guard

600

7,200

10

Cleaner

200

2,400

Sub total

14

Employee benefit

8750
-

(20% BS)
Total

B.

105,000

21,000
-

126,000

TRAINING REQUIREMENT

The production operators should be given on-job training on the operation and maintenance
of the machineries for a duration of two weeks by experts of the supplier of the machinery
and equipment. The estimated training cost is Birr 12,000.

73-13

VII.

FINANCIAL ANALYSIS

The financial analysis of the candy project is based on the data presented in the previous
chapters and the following assumptions:-

Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

3 years

Bank interest

8%

Discount cash flow

8.5%

Accounts receivable

30 days

Raw material local

30days

Raw material, import

90days

Work in progress

2 days

Finished products

30 days

Cash in hand

5 days

Accounts payable

30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at
million, of which 17 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

9.89

73-14
Table 7.1
INITIAL INVESTMENT COST

Sr.

Total Cost

No.

N.B

Cost Items

(000 Birr)

Land lease value

16.0

Building and Civil Work

1,150.0

Plant Machinery and Equipment

6,940.0

Office Furniture and Equipment

125.0

Vehicle

200.0

Pre-production Expenditure*

670.8

Working Capital

795.0

Total Investment cost

9,896.8

Foreign Share

17

Pre-production expenditure includes interest during construction ( Birr 520.8

thousand ) training (Birr 12 thousand ) and Birr 138 thousand costs of registration, licensing
and formation of the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 6.84 million (see
Table 7.2).

The material and utility cost accounts for 76.89 per cent, while repair and

maintenance take 2.63 per cent of the production cost.

73-15
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items

Cost

Raw Material and Inputs

3,845.00

56.22

Utilities

1413.64

20.67

Maintenance and repair

180

2.63

Labour direct

75.6

1.11

Factory overheads

25.2

0.37

Administration Costs

50.4

0.74

5,589.84

81.73

834

12.19

415.48

6.07

6,839.32

100

Total Operating Costs

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the first
year of operation. Important ratios such as profit to total sales, net profit to equity (Return on
equity) and net profit plus interest on total investment (return on total investment) show an
increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is viable.

73-16

2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at full
capacity ( year 3) is estimated by using income statement projection.

BE =

Fixed Cost

15 %

Sales Variable Cost

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.
The projects initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 28% and the net present
value at 8.5% discount rate is Birr 8.36 million.

D.

ECONOMIC BENEFITS

The project can create employment for 14 persons.

In addition to supply of the domestic

needs, the project will generate Birr 5.07 million in terms of tax revenue. The establishment of
such factory will have a foreign exchange saving effect to the country by substituting the
current imports.