20.

PROFILE ON COFFEE ROASTING,

GRINDING AND PACKING
 20 - 2

TABLE OF CONTENTS
PAGE

I. SUMMARY 20 - 3

II. PRODUCT DESCRIPTION AND APPLICATION 20 - 3

III. MARKET STUDY AND PLANT CAPACITY 20 - 4

A. MARKET STUDY 20 - 4
B. PLANT CAPACITY AND PRODUCTION PROGRAMME 20 - 7

IV. MATERIALS AND INPUTS 20 - 8

A. MATERIALS 20 - 8
B. UTILITIES 20 - 11

V. TECHNOLOGY AND ENGINEERING 20 - 11

A. TECHNOLOGY 20 - 11
B. ENGINEERING 20 - 13

VI. MANPOWER AND TRAINING REQUIREMENT 20 - 14

A. MANPOWER REQUIREMENT 20 - 14
B. TRAINING REQUIREMENT 20 - 15

VII. FINANCIAL ANALYSIS 20 - 16

A. TOTAL INITITAL INVESTMENT COST 20 - 16

B. PRODUCTION COST 20 - 17
C. FINANCIAL EVALUATION 20 - 18
D. ECONOMIC BENEITS 20 - 19
 20 - 3

I. SUMMARY

This profile envisages the establishment of a plant for the production of 94 tonnes of
roasted, grounded and packed coffee per annum.

The current demand for the envisage product is estimated at 324 tonnes per annum and it
is projected to reach at 480 tonnes by the year 2014.

The project will create employment for about 27 persons.

The total investment cost of the project is estimated at Birr 2.15 million, out of which
Birr 511,500 is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 21% and a net
present value (NPV) of Birr 1.46 million, discounted at 10.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Coffee is a common name for any of a genus of trees of the madder family, and also for
their seeds (beans) and for the beverage brewed from them. The Arabicas and Rubastas
are the two major types of commercial coffee. In order to meet wide consumer appeal,
coffee liquor is extracted from properly ground coffee beans that are expertly roasted
from properly sorted green coffee.

The principal physiological effects of coffee are due to caffeine, an alkaloid that acts as a
mild stimulant. Depending upon the granular size and heterogeneity of the particles size,
there are two distinct categories of ground coffee. The first category is made up of
uniform particles of average size from which small powdery particles have been
separated. The second category of brewed coffee consists of grounds made up of
particles of various sizes of, which upto 50 per cent are of very small size.
 20 - 4

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

Coffee is served at least once in most of Ethiopian households. The coffee ceremony at
home is more cultural than the mare need of drinking coffee. Roasting coffee is a craft
by itself taken seriously by every household.

Accordingly in Ethiopia as coffee is usually made at home, the official statistics on

milled coffee does not represent the total supply of packed or milled coffee. In the near
future households may began to buy packed (milled) coffee. However, the associated
cultural impacts of the coffee ceremony will remain in fact for a long time making
households out of the target market for packed coffee.

The supply of milled coffee is presented in Table 3.1. As can be seen from Table 3.1.,
the supply of milled coffee during the period 1989- 1994 was on average 94 tonnes with a
steady annual growth rate of 127%.
Table 3.1
MILLED COFFEE PRODUCTION (TONNES)

Year Milled Coffee Growth Rate %

Production
1989 16 -
1990 31 94
1991 34 10
1992 28 -18
1993 156 457
1994 300 92
Source : - CSA
 20 - 5

The least square equation built for the five year supply is found to be:
Y = 51,114 + 84.73 R2 = 0.7112

Accordingly, by using the above equation, the current effective demand for milled coffee
is estimated at 324 tonnes.

2. Projected Demand

The demand for packed coffee (roasted ground and packed) is directly related with
number of coffee serving bars. Literally bar means "house of coffee" or "buna bet" in
Amharic indicating the formation of such a business as directly dependant on milled
coffee. Hotels, restaurants and clubs also provide coffee to the public using packed
coffee.

Urbanization is another factor for the growth in demand for packed coffee. However, the
most determining factor is growth in the service industry particularly in bars, hotels and
restaurants. The gross domestic production of trade, hotels and restaurants industrial
sector is presented in Table 3.2.
 20 - 6

Table 3.2
GROSS DOMESTIC PRODUCT (GDP) OF TRADE, HOTELS AND
RESTAURANTS INDUSTRIAL SECTOR AT CONSTANT 1980/81
FACTOR COST

Year Million Birr Growth Rate %

1983 760.8 -
1984 648.4 -14.77
1985 887.1 36.81
1986 945.2 6.55
1987 1027.7 8.73
1988 1115.5 8.54
1989 1208.9 8.37
1990 1263.3 4.50
1991 1343.9 6.38
1992 1396.6 3.92
1993 1469.2 5.20
1994 1519.3 3.41
1995 1528.4 0.60

As can be seen from Table 3.2, the sector achieved an average of about 7% growth rate
between 1983 - 1985. In the projection of the demand for packed coffee only the recent
five years are considered. The growth achieved during the period 1991 - 1992 by the
trade, hotels and restaurants sector was about 4% and it is applied on the current effective
demand. The projected packed coffee demand is presented in Table 3.3.
 20 - 7

Table 3.3
PROJECTED DEMAND FOR ROASTED,
GROUND AND PACKED COFFEE (TONNES)

Year Projected Unsatisfied Demand

Demand
2005 337 37
2006 350 50
2007 364 64
2008 379 79
2009 394 94
2010 410 110
2011 426 126
2012 443 143
2013 461 161
2014 480 180

3. Pricing and Distribution

The price of roasted, ground and packed coffee at Addis Ababa is Birr 26 per kg.. The
proposed price for the project understudy is Birr 23 per kg.

Distribution of the product should be handled by door to door van delivery to bars and
restaurants in order to attract permanent customers.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study, the production capacity of the envisaged plant is 94 tonnes of
roasted, ground and packed coffee.
 20 - 8

2. Production Programme

The annual production programme is formulated on the basis of the market forecast and
selected plant capacity. It is assumed that the plant will achieve 70% and 85% capacity
utilization rate in the first and second year, respectively. Full capacity will be reached in
the third year and onwards. The production programme for total roasted, ground and
packed coffee is shown in Table 3.4.

Table 3.4
ANNUAL PRODUCTION PROGRAMME

Production Programme
Sr. Description Year 1 Year 2 Year 3 and
No onwards
1. Roasted ground and packed 65.80 79.90 94.00
coffee, tons
2. Capacity utilization rate, % 70 85 100

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw material required by the plant is clean green coffee. During roasting
process the green coffee beans loose weight due to evaporation of water. The extreme
limits of the weight loss termed as “a loss in the fire” are between 14 and 23 per cent of
the initial weight of coffee beans. Elimination of the silver skin of coffee beans that
amounts from 0.2% to 0.4% and the release of certain volatile elements also occurs
during roasting.
 20 - 9

Taking the above mentioned weight loss into account, the annual requirement for green
coffee at 100 per cent capacity utilization rate is estimated to be 94 tonnes +(0.22 x 94
tonnes) = 114.68 tonnes). Annual cost of green coffee at a rate of 10,000 per tonne will
amount to Birr 1,146,800.

The major auxiliary materials in the production of roasted, ground and packed coffee
comprise packing materials of various type and quality. The packing materials to be used
by the plant are paper bag, corrugated paper box with carton panel, and gumming
paper.

The proposed package sizes of printed paper bag for packing of roasted and ground
coffee are 500 gm, 1000 gm and 1,500 gm which are planned to constitute 35%,
50% and 15% of the total roasted and ground coffee respectively.

The estimated annual requirement for printed paper bag at 100 per cent capacity
utilization rate and the corresponding cost estimates are given in Table 4.3.

Paper bag of required size, quality and desired number of colours can be available
from local private or public paper factories on an order basis.
Table 4.3
ANNUAL PAPER BAG REQUIREMENT AND COST ESTIMATES

Package Size Total Roasted Paper bag Allowance for Total Unit Total Cost
(gm) Ground Requirement Damage Requirement Cost (Birr)
Coffee (kg) (pcs) (0.5%) (Birr)
1 2 3=No.2x1,000 4 5 = 3+4 6 7
No. 1
500 32,900 65,800 329 66,129 1.00 66,129
1000 47,000 47,000 235 47,235 1.00 47,235
1500 14,100 9,400 47 9,447 1.00 9,447
Grand Total 94,000 - - - - 122,811
 20 - 10

The estimated annual requirement for corrugated paper box and panel at 100 per
cent capacity utilization rate, the optimum corrugated paper box sizes for each package
size and cost estimates are given in Table 4.4.

Table 4.4
ANNUAL REQUIREMENT FOR CORRUGATED PAPER BOX AND PANEL
AND THEIR COST ESTIMATES

Package Specific Volume Number of Weight of Annual Annual Unit Total

Size of of product- Paper bag Product per Roasted Requirement Cost Birr/ Cost
Paper filled paper per box box (kg) Ground box Birr/ box
bag (gm) bag (pc) Coffee output (panel) (panel)
(m3/package) (kg) Box Panel
(pcs) (pcs)
1 2 3 4=1x3 5 6=5/4 7=6 8 9=6x8
1,000 (7X8)
500 8.05x104 20 10 32,900 3,290 3,290 2.07 6,810
0.41 1,349
1000 1.61x103 15 15 47,000 3,134 3,134 3.12 9,778
0.69 2,162
1,500 2.41x103 10 15 14,100 940 940 3.20 3,008
0.63 592
Grand 94,000 23,699
Total

The estimated annual requirement for gumming paper and respective cost estimates at
100 per cent capacity utilization rate are given in Table 4.5.
Table 4.5
ANNUAL REQUIREMENT FOR GUMMING
PAPER AND THEIR COST ESTIMATES
Annual Estimated Annual
Package Size of Requirement for Length per Roll Requirement Unit Total Cost
Paper bag (gm) Corrugated Paper of Gumming for Gumming (Cost) (Birr )
box (pc) Paper (m) Paper (roll) Birr/roll
500 3,290 18 156 25 3,900
1000 3,134 18 187 25 4,675
1,500 940 18 55 25 1,375
Grand Total 398 9,950

Gumming paper of desired size and quality is available in rolls at the local market.
 20 - 11

B. UTILITIES

The major utility required by the plant is electricity. Annual electric consumption of the
plant at 100 per cent capacity utilization rate is estimated at 11,573 kWh and the
estimated cost at the rate of Birr 0.4736 per kWh will amount to Birr 5,481.

Potable water will be required for personal use and quality control laboratory. Annual
water requirement is estimated to be 150 cubic meter. Annual cost of water at the
rate of Birr 2.00 per cubic meter amounts to Birr 300.

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

Coffee processing involves three distinct operations, viz roasting, grinding and
packing. Clean coffee, prior to roasting is blended in desired proportions.

The aromatic qualities of coffee only become apparent once the beans have been
exposed to high temperatures during pyrolysis or roasting.

Experts place the roasting zone between 180o C and 240oC the optimum
temperature being between 210oC and 230 oC. Above this temperature, over-roasting
begins. In general, four principal groups of reactions occur during roasting:
dehydration (deprive of moisture), hydrolysis (breaking down of water molecules in
hydrogen and oxygen elements), desmolysis and catalysis (for aiding the speeding up of
chemical process).
 20 - 12

The roasting process normally lasts for between 12 and 15 minutes. In slow roasting
techniques, it requires about 25 minutes. While roasting gives coffee its taste and
aroma, it also changes the bean in certain ways.

The beans lose weight due to evaporation of water from the green coffee. About 0.2-
0.4 percent silver skin is also eliminated due to roasting.

Roasting induces the endosperm to increasing volume due to the formation and
expansion of gas between 180oC and 220oC.This is manifested in a volumetric
increase of about 50 to 80 percent, the extremes being between 30 and 100 percent.
The bean becomes porous and crumbles when pressure is applied.

The minerals in coffee do not change noticeably during roasting , but their relative
content increases when the water and volatile organic components disappear.

When the desired colour is reached, the coffee is discharged into the cooling bin
where it is cooled upto room temperature.

The major post-roasting operations comprise sorting, coating or glazing, blending,

packing and beverage preparing.

The roasted coffee is sometimes sorted to eliminate beans that are pale (too light) or
charred (too dark).

Coffee beans are blended after roasting if there is too great a variation in type.

Roasted coffees rapidly lose their flavour and aroma. In order to avoid this,
sufficiently airtight packaging should be used which can preserve the qualities of the
coffee for a longer period of time.
 20 - 13

2. Source of Technology

The following firm could be a possible supplier of the required machines.

Queens land, New South Wales.
Butany Road, Green Square, NSW.
Australia 2015.
Fax: 6129692-0400.

B. ENGINEERING

1. Machinery and Equipment

The total cost of machinery and equipment is estimated at Birr 511.500, out of
which Birr 485,925 will be required in foreign currency. Detailed list of machinery and
equipment and their cost estimates are given in Table 5.1.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT AND
ALONG WITH THEIR ETIMATED COSTS
Sr. Unit Cost Total Cost (Birr)
No Description Qty. (Birr) F.C L.C Total
A. Machinery and Equipment
1 Coffee Roaster 1 106,395 101,076 5,319 106,395
2 Coffee Mixer 1 31,872 30,278 1,594 31,872
3 Coffee Grinder 6 31,306 178,444 9,392 187,836
4 Automatic Packing m/c 1 65,767 62,479 3,288 65,767
5 Automatic Packing m/c 1 94,156 89,448 4,708 94,156
6 Screw Conveyor 1 8,712 8,276 436 8,712
7 Goose type Conveyor 1 16,762 15,924 838 16,762
Grand Total 485,925 25,575 511,500
 20 - 14

2. Land, Buildings and Civil Works

The total land area required for the coffee processing plant is 1,000 square meters.
The total built-up area is estimated at 500 square meters. The total cost of buildings
and civil works, at the rate of Birr 2,000 Per m2, is estimated at Birr 700,000. On the
other hand, the total cost of land lease, at the rate of Birr 2 per m2 and for a period of 70
years, is estimated at Birr 140,000. The total land lease cost is assumed to be paid in
advance.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The coffee roasting, grinding & packing plant will create job opportunities for 27
persons.

The proposed manpower requirement and the estimated annual labour cost including
fringe benefits is given in Table 6.1.
 20 - 15

Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. Description Req. Monthly Annual

No. No. Salary (Birr) Salary (Birr)
1 General Manager 1 2,000 24,000
2 Secretary 1 700 8,400
3 Quality Controller 1 700 8,400
4 Finance and Administrative Head 1 1,500 18,000
5 Commercial Head 1 1,500 18,000
6 Production and Technical Head 1 1,600 19,200
7 Personnel and General Service 1 750 9,000
8 Accountant 1 700 8,400
9 Cashier 1 600 6,000
10 Sales Clerk 1 400 4,800
11 Transit Worker 1 600 7,200
12 Production Supervisor 1 900 10,800
13 Machine Operator 2 1,000 12,000
14 Electrician 1 600 7,200
15 Mechanic 1 600 7,200
16 Production Clerk 1 400 4,800
17 Store Keeper 1 500 6,000
18 Purchaser 1 500 6,000
19 Maintenance Section Head 1 900 10,800
20 Guard 2 400 4,800
Total 27 16,750 201,000
Employees’ Benefit (20% of Salary) 3,350 40,200
Grand Total 20,100 241,200

B. TRAINING REQUIREMENT

The quality controller and production supervisor should be given on-the-job training
for a duration of one month by experts of the supplier of the machinery and
equipment. The three machine operators should also obtain a 15 days on –the – job
training on how to operate the equipment and handle the inputs. The estimated training
cost is Birr 18,563.
 20 - 16

VII. FINANCIAL ANALYSIS

The financial analysis of the coffee roasting, grinding & packing project is based on the
data presented in the previous chapters and the following assumptions:-

Construction period 2 years

Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 10.5%
Discounted cash flow 10.5%

Repair and maintenance 5 % of the total plant and machinery

Accounts receivable 30 days
Raw material, local 30 days
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 initial investment cost of the project including working capital is estimated at
Birr 2.15 million, of which about 29% will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1
 20 - 17

Table 7.1
INITIAL INVESTMENT COST ('000 BIRR)

Sr. Cost Items Foreign Local Total

No. Currency Currency
1 Land - 140.00 140.00
2. Building and Civil Work - 700.00 700.00
3. Plant Machinery and Equipment 485.93 25.56 511.50
4. Office Furniture and Equipment - 50.00 50.00
5. Vehicle - 225.00 225.00
6. Pre-production Expenditure* - 345.21 345.21
Total Investment cost 485.93 1,485.78 1,971.71
7 Working Capital - 187.10 187.10
Grand Total 485.93 1,672.89 2,158.81

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 1.85 million (see
Table 7.2). The material and utility cost accounts for 70 per cent while repair and
maintenance take 2 per cent of the production cost.

------------
* Pre-production expenditure include interest during construction (Birr 270,210
thousand), training (Birr 18,563), and costs of registration, licensing and
formation of the company including legal fees, commissioning expenses, etc.
 20 - 18

Table 7.2
ANNUAL PRODUCTION COST ('000 BIRR)

Year
Items 3 4 7 10
Raw Material and Inputs 1,112.05 1,240.87 1,303 1,303
Labour direct 102.91 114.83 120.60 120.60
Utilities 4.93 5.50 5.78 5.78
Maintenance and repair 33.34 37.20 39.08 39.08
Labour overheads 34.30 38.28 40.20 40.20
Administration cost 68.60 76.55 84.40 84.40
Total Operating Costs 1,356.13 1,513.23 1,589.32 1,589.32
Depreciation 153.15 153.15 153.15 93.15
Cost of Finance 156.74 147.14 111.85 64.24
Total Production Cost 1,666.02 1,813.52 1,854.32 1,746.71

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.
 20 - 19

2. Break-even Analysis

The break-even point of the project is estimated by using income statement projection.

Be = Fixed Cost = 30 %
Sales – Variable cost
3. Pay-back Period

The investment cost and income statement projection are used to project the pay-back
period. The project's initial investment will be fully recovered within 5 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 21 % and the net
present value at 10.5% discount rate is Birr 1.46 million.

D. ECONOMIC BENEFITS

The project can create employment for 27 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.61 million interms of tax revenue. Moreover, the
Regional Government can collect employment, income tax and sales tax revenue.