6.

PROFILE ON COFFEE ROASTING,

GRINDING AND PACKING
 6-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 6 -3

II. PRODUCT DESCRIPTION & APPLICATION 6-3

III. MARKET STUDY AND PLANT CAPACITY 6-4

A. MARKET STUDY 6-4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 6-6

IV. MATERIALS AND INPUTS 6-7

A. RAW & AUXILIARY MATERIALS 6-7
B. UTILITIES 6-9

V. TECHNOLOGY & ENGINEERING 6 - 10

A. TECHNOLOGY 6 - 10
B. ENGINEERING 6 - 12

VI. MANPOWER & TRAINING REQUIREMENT 6 - 13

A. MANPOWER REQUIREMENT 6 - 13
B. TRAINING REQUIREMENT 6 - 13

VII. FINANCIAL ANLYSIS 6 - 14

A. TOTAL INITIAL INVESTMENT COST 6 - 14
B. PRODUCTION COST 6 - 15
C. FINANCIAL EVALUATION 6 - 16
D. ECONOMIC BENEFITS 6 - 17
 6-3

I. SUMMARY

This profile envisages the establishment of a plant for coffee roasting, grinding and packing
with a capacity of 100 tonnes per annum.

The present demand for the proposed products is estimated at 238.05 tonnes per annum. The
demand is expected to reach at 501.54 tonnes by the year 2025.

The plant will create employment opportunities for 15 persons.

The total investment requirement is estimated at Birr 2.41 million, out of which Birr 0.511
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 19 % and a net present
value (NPV) of Birr 1.59 million discounted at 8.5%

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. Chemicals extracted from expertly processed and roasted
coffee by hot water classified as non volatile are caffeine, trigonelline, chlorogenic acid,
phenolic acids, amino acids, aldehydes, ketones, esters, amines, and mercaptanes.
Undoubtedly the popularity of this beverage is, at least to some extent, related to their stimulant
effects. Average caffeine contents per cup of brewed coffee is 110 mg. Caffeine is a mild
psychostimulant that has been called the most widely used psychoactive substance on earth.

Several varieties of processed green coffee usually are blended and roasted together to
produce the tastes, aromas and flavors popular with consumers. Ground coffee is consumed by
hotels, bars and cafeterias.
 6-4
III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The demand for milled coffee is essentially limited to urban areas. The major users of the
product include hotels, bars, and cafeterias, whose customer is mainly the urban population.
The country’s requirement for milled coffee has been met through domestic production and
import. Table 3.1 shows the supply of the product from domestic production and imports
during the period 1994-2004. During the period under reference, domestic production and
imports averaged at 85.36 and 134.73 tonnes, respectively, and average supply stood at 220.09
tonnes. Thus, domestic production, on the average, accounted for 39 per cent of the country's
requirement for milled coffee.
Table 3.1
SUPPLY OF MILLED COFFEE (TONNES)

Year Domestic Import Total

Production   Supply
1994 - 0.02 0.02
1995 - 1452.1 1452.1
1996 - 6.78 6.78
1997 16 0.01 16.01
1998 31 3.44 34.44
1999 34 4.56 38.56
2000 28 1.78 29.78
2001 156 2.99 158.99
2002 300 5.01 305.01
2003 115 4.29 119.29
2004 259 1.05 260.05
Average 85.36 134.73 220.09

Sources: Customs Authority, External Trade Statistics, 1994 - 2004.

CSA, Statistical Abstract, various years.
 6-5
As can be seen from Table 3.1, the supply of milled coffee, which constitutes domestic
production and imports, exhibits considerable fluctuation. Therefore, it appears more
appropriate to consider the average annual supply for the period under reference as the effective
demand for the product for the year 2004. Since the consumption of milled coffee is associated
with the urban population, the demand for the product is assumed to grow at the rate of 4% that
corresponds to the annual growth rate of the urban population. The present demand for milled
coffee (i.e. for the year 2006) is thus estimated at 238.05 tonnes.

2. Projected Demand

The demand for milled coffee is exclusively influenced by urbanization. Accordingly, the 4%
annual rate of urbanization is applied in projecting the demand for the product. Assuming the
existing domestic suppliers of the product will maintain their market share (39%) of the
projected demand, the market share of the envisaged plant is depicted in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR MILLED COFFEE (TONNES)
  Projected Market Share
Year Demand Existing Envisaged
    Producers Plant
2007 247.57 96.55 151.02
2008 257.47 100.42 157.06
2009 267.77 104.43 163.34
2010 278.48 108.61 169.88
2011 289.62 112.95 176.67
2012 301.21 117.47 183.74
2013 313.26 122.17 191.09
2014 325.79 127.06 198.73
2015 338.82 132.14 206.68
2016 352.37 137.43 214.95
2017 366.47 142.92 223.54
2018 381.13 148.64 232.49
2019 396.37 154.58 241.79
2020 412.23 160.77 251.46
2021 428.71 167.20 261.52
2022 445.86 173.89 271.98
2023 463.70 180.84 282.86
2024 482.25 188.08 294.17
2025 501.54 195.60 305.94
 6-6
3. Pricing and Distribution

The retail price of domestically produced milled coffee ranges from Birr 27 to Birr 29 per kg.
Considering the average market price of Birr 28 per kg and allowing 40 per cent for wholesale
and retail margin, the envisaged plant is expected to sell its product at Birr 24 per kg.

The product can get its market outlet through the existing wholesale and retail network that
includes department stores, merchandise shops and supermarkets.

B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study, the production capacity of the envisaged plant is 100 tonnes of
roasted, ground and packed coffee. This capacity will be attained by working single shift a day
having eight working hours and 300 working days a year.

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.
 6-7

Table 3.4
ANNUAL PRODUCTION PROGRAMME

Sr. Production Programme

Year 1 Year 2 Year 3 and
No Description
onwards
1. Roasted ground and packed 70 85 100
coffee, tonnes
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% 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.

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 100 tonnes +(0.22 x 100 tones) = 122
tonnes. To attain the optimum price and taste for the ground coffee, different types of coffee
from different areas will be mixed. Annual cost of green coffee at a rate of Birr 12,000 per ton
will amount to Birr 1,464,000.

The major auxiliary materials required for the production of roasted, ground and packed coffee
comprise packing materials of various type. The packing materials to be used by the plant are
paper bag, corrugated paper box with carton panel, and gumming paper.
 6-8
The proposed package sizes of printed paper bag for packing of roasted and ground coffee are
500 gm, 1,000 gm and 1,500 gm which are planned to constitute 30%, 60% and 10% 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 4.1.

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 4.1
ANNUAL PACKING MATERIAL REQUIREMENT AND COST ESTIMATES

Total Paper bag Allowance Total Unit Cost Total Cost

Package Size Roasted Requirement for Require- (Birr) (Birr)
(gm) Ground (pcs) Damage ment
Coffee (kg) (0.3%)
500 30,000 60,000 1800 61,800 1.00 61,800
1000 60,000 60,000 1800 61,800 1.25 77,250
1500 10,000 6,667 200 6,867 1.50 10,300.50
Grand Total 100,000 - - - - 149,350.50

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 4.2.
 6-9

Table 4.2
ANNUAL REQUIREMENT FOR CORRUGATED PAPER BOX AND PANEL AND
THEIR COST ESTIMATES

Package Number of Annual Annual Unit Cost Total Cost

Size of Paper bag Roasted requirement Birr/ Box + Birr/ Box
Paper bag per box Ground of Panel (Panel)
(gm) (pc) Coffee Box + Panel
output (kg)
500 20 30,000 3,090 2.48 7,663.2

1000 15 60,000 4,120 3.81 15,697.2

1,500 10 10,000 687 3.83 2,631.21

Grand 100,000 25,991.61

Total

The estimated annual requirement for gumming paper and respective cost estimates, at 100
per cent capacity utilization rate, is estimated at Birr 5,500.

Gumming paper of desired size and quality is available in rolls at the local market.
The total cost of raw materials and auxiliaries is estimated at Birr 2,620,841.61.

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 12,000 kWh and the estimated cost, at
the rate of Birr 0.4736 per kWh, will amount to Birr 5,683.20

Potable water will be required for personal use and quality control laboratory. Annual water
requirement is estimated to be 150m3. Annual cost of water, at the rate of Birr 1.90 per
m3, amounts to Birr 285.

The total annual cost of utilities is estimated at Birr 5,968.20.

 6 - 10
V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The main processing steps in the manufacture of ground coffee are blending, roasting, grinding
and packing. green coffee is cleaned of string, lint, dust, hulls and other foreign matter.

Roasting: - Coffee from different varieties or sources are usually blended before or after
roasting in order to achieve good taste coffee as well as low cost production.

Roasting by hot combustion gases in roasting cylinders requires 8-15 min. The bean charge
absorbs heat at a fairly uniform rate and most moisture is removed during the first two-thirds of
this period. As the temperature of the coffee increases rapidly during the last few minutes, the
beans swell and unfold with a noticeable cracking sound, like that of popping corn, indicating a
reaction change from endothermic to exothermic. This stage is known as development of the
roast. The final bean temperature, 200-220ºc, is determined by the blend, variety, flavor
development desire. A water or air quench terminates the roasting reaction. Most, but not all, of
any added water is then evaporated.

The bean temperature, correlated to the color of ground coffee measured by a photometric
reflectance instrument, determines the quench end point of a roast. At the final bean
temperature, the firing shuts down automatically, followed by water spraying for a timed period
and finally, discharge of the coffee.

Air must be circulated through the beans to remove excess heat before the finished and
quenched roasted coffee is conveyed to storage beans. Residual foreign matter. Such as stones
and tramp iron, which may have passed through the initial green coffee cleaning operation,
must be removed before grinding. This is accomplished by an air lift adjusted to such a high
velocity that the roasted coffee beans are carried over into bins above the grinders, and heavier
impurities left behind. The coffee beans flow by gravity to mills where they are ground to the
desired particle size.
 6 - 11

Grinding: - roasted coffee beans are ground to improve the extraction efficiency in the
preparation of the beverage. Particle size distributions ranging from about 1100µm average
(very coarse) to about 500µm average (very fine) are tailored by the manufacturer to the
various kinds of coffee makers used in house holds, hotels, restaurants and institutions. Coffee
is ground in mills that use multiple steel cutting rolls to produce the most desirable uniform
particle size distribution. After passing through cracking rolls, the broken beans are fed
between two or more rolls, one of which is cut or scored longitudinally, the other,
circumferentially. The paired rolls operate at differential speeds to cut, rather than crush, the
coffee particles. A second pair of more finely scored rolls, installed below the main grinding
rolls and running at higher speeds, is used for finer grinds.

Packaging: - After roasting and grinding, the coffee is conveyed, usually by gravity, to
weighing and filling machines that achieve the proper fill by tapping or vibrating. The ground
coffee is vacuum packed in flexible paper bag and placed in a paper board carton that helps
shape the bag into a hard brick form during the vacuum process. The carton also protects the
package from physical damage during handling and transportation. This type of package
provides a barrier to moisture and oxygen. The process has no any adverse impact on
environment.

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.
 6 - 12

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 is
given in Table 5.1.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIREMENT

Sr. Qty.
No Description (No.)
1. Coffee Roaster 1
2. Coffee Mixer 1
3. Coffee Grinder 6
4. Automatic Packing m/c 2
6. Screw Conveyor 1
7. Goose type Conveyor 1

2. Land, Buildings and Civil Works

The total land area required for the coffee processing plant is 500 square meters. The total
built-up area is estimated at 300 square meters. The total cost of buildings and civil works,
at the rate of Birr 1,500 per m2, is estimated at Birr 450,000. On the other hand, the total cost
of land lease, at the rate of Birr 9.78 per m 2 and for a period of 80 years, is estimated at Birr
4,890 . The total cost of land lease, building and civil works is estimated at Birr 454,890.
 6 - 13
VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The coffee roasting, grinding & packing plant will create job opportunities for 15 persons. 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 138,240.

Table 6.1
MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. Description Req. Monthly Annual

No. No. Salary (Birr) Salary (Birr)
1 General Manager 1 1,500 18,000
2 Secretary 1 600 7,200
3 Quality Controller 1 700 8,400
4 Personnel 1 900 10,800
5 Accountant 1 700 8,400
6 Sales man 1 400 4,800
7 Production Supervisor 1 900 10,800
8 Machine Operator and technician 3 1,800 21,600
9 Production Clerk 1 400 4,800
10 Store Keeper 1 500 6,000
11 Purchaser 1 600 7,200
12 Guard 2 600 7,200
Total 15 11,700 115,200
Employees’ Benefit (20% of Salary) 2,340 23,040
Grand Total 14,040 138,240

B. TRAINING REQUIREMENT

The quality controller, production supervisor, technician operators should be given on-the-
job training for a duration of two weeks by experts of the supplier of the machinery and

equipment. The estimated training cost is Birr 20,000.

 6 - 14
VII. FINANCIAL ANALYSIS

The financial analysis of the coffee roasting, grinding and packing 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 60days
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 2.41 million,
of which 27.93 per cent will be required in foreign currency.

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

Table 7.1
 6 - 15
INITIAL INVESTMENT COST

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 4.89
2. Building and Civil Work 450.0
3. Plant Machinery and Equipment 511.5
4. Office Furniture and Equipment 75.0
5. Vehicle 750.0
6. Pre-production Expenditure* 271.15
7 Working Capital 350.44
Total Investment cost 2412.98
Foreign Share 27.93

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 2.20 million (see
Table 7.2). The material and utility cost accounts for 74.63 per cent, while repair and
maintenance take 2.27 per cent of the production cost.

* N.B Pre-production expenditure includes interest during construction ( Birr 111.15

thousand ) training (Birr 20 thousand ) and (Birr 140 thousand) costs of registration,
licensing and formation of the company including legal fees, commissioning expenses,
etc.
 6 - 16
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 1639.34 74.36
Utilities 5.96 0.27
Maintenance and repair 50.0 2.27
Labour direct 69.12 3.14
Factory overheads * 23.04 1.05
Administration Costs** 46.08 2.09
Total Operating Costs 1833.54 83.17
Depreciation 263.39 11.95
Cost of Finance 107.65 4.88
Total Production Cost 2204.59 100

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.

* Factory overhead cost includes salaries and wages of supervisors, insurance of factory
workers social costs on salaries of direct labour etc.

** Administrative cost includes salaries and wages, insurance, social costs, materials and
services used by administrative staff etc.

2. Break-even Analysis
 6 - 17
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 = 52%
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 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 19% and the net present
value at 8% discount rate is Birr 1.59 million.

D. ECONOMIC BENEFITS

The project can create employment for 15 persons. In addition to supply of the domestic
needs, the project will generate Birr 58.62 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.