RWATHIA AGROFARM.

FEASIBILITY REPORT ON
ESTABLISHMENT AND RUNNING OF A
PACKHOUSE FACILITY AND FIFTY
ACRES AVOCADO ORCHARD.

YEAR 2022.
 Table of Contents

2. SCOPE OF THE PROJECT .......................................................................................................4

3. BACKGROUND: ...................................................................................................................... 4
4. Objectives: .................................................................................................................................4
b) Specific objectives: ................................................................................................................... 4
5. MARKET ..................................................................................................................................5
6. MARKETING STRATEGIES ................................................................................................... 5
7. PROJECT ASPECTS: ...............................................................................................................5
8. SWOT ANALYSIS ................................................................................................................... 6
8.1 Discounted Method:............................................................................................................7
The decision rule: .......................................................................................................................... 7
9. FINANCIAL PLAN: ................................................................................................................. 8
Worked out financial plan is as per the attached excel presentation. ..............................................8
10. CONCLUSIONS:................................................................................................................... 8
11. REFERENCES: ..................................................................................................................... 9
2. SCOPE OF THE PROJECT
The following feasibility analysis is calculated for estimating the overall economic viability on
setting up and running an Avocado Pack House facility and a minimum of 50 (fifty acre) Orchard
having 6000 Hass avocado trees. The project is intended for decision maker and would be financier
in arriving at concrete financing decisions. It acts as benchmarking tool during the project
implementation stage.

The project target to produce and package fresh fruits for European and Asian market where the
demand for this commodity is increasing by day. Alongside fresh fruits export, Rwathia Agrofarm
is incorporating export of cryogenically processed and frozen fruits with higher shelf life of up to
six months.

It encloses the use of Net Present Value(NPV) analysis for estimating the business risk assuming
an incremental cost of 10 % for a scope of 10 years’ period.

3. BACKGROUND:

Kenya is currently eighth largest producer and exporter of Avocado globally. However, this does
not reflect the true figures on the ground as lots of wastages and losses are experienced as result of
two major factors: premature harvesting thereby resulting in lots of fruit being rejected at pack houses
and or insufficient training on plant husbandry resulting in compromised output that does not meet the
required standards.

Avocados are rich in protein, carbohydrates, vitamins and minerals while the oil content consists
of polyunsaturated fatty acids. The avocado tree is well known for its low demand of nutrients This is
demonstrated by the low total content of nutrients in the crop as compared with other fruit trees and
field crops. This is the main reason avocado can be preferred to grow organically very comfortably.

4. Objectives:
a) Broad objective: To prepare an entire financial framework of organic avocado production
in the country.

b) Specific objectives:

 To estimate cost of production and find the alternative to reduce the cost in that factor.
 To estimate chain costs of processing and export.
 To calculate and ascertain the profitability of the whole organic avocado production chain.

 To advise on the most appropriate investment decision.

5. MARKET
There is increasing craze of avocado in Kenya and around the world. These days the demand of
avocado is very high as compared to production capacity which is very low. Market of organic
avocado can be very high and therefore there is no need to create artificial demand of avocado as
there is already big existing market.

To strike a balance, there is urgent need to boost production through increased crop cover through
additional trees and waste management to mitigate on unnecessary loss.

6. MARKETING STRATEGIES
As there is a very big market of organic avocado we will try to keep the marketing simple and
sustainable as possible. We will make use modern marketing techniques and strategies for
increasing international market penetration. Some of them are as follows:

 Cryogenic processing remains the next big thing, freezing our fruit up to negative(-ve) 50
degrees assures a product shelf life of not less than six months therefore nil compromise
on product quality.
 A well designed and established Website and Social Networking Sites through association
with established platforms like the avocado society of Kenya.

 Market penetration strategy. We will be availing best quality product to our international
consumer at negotiated price thereby promoting our brand and making them our brand
ambassadors.

7. PROJECT ASPECTS:
i. Technical aspects: Outsourcing for the next 10 years as we plant our produce, has already
given us a clear guidance. We intend to keep a good relation with both the consumers and
the farmers.
ii. Economic aspect: We are encouraging other farmers also to increase their avocado
cultivation with assurance of ready market for their produce. We will be offering ourselves
to assist in trainings on trees handling techniques right from planting, pests and diseases
control, pruning, soil analysis and harvesting. We will remain available to them in offering
the right seedling and assisting in grafting where necessary as our corporate social
responsibility (CSR).
iii. Marketing aspect: being a licensed exporters of fruits, vegetables and herbs, we have
already entered into export contract with biggest consumers in the world such as X5 chains
in Eastern Europe, supply expected to start as early February 2022. Meanwhile we are still
in discussion with other consumers from France, Germany, United Kingdom and the
Netherlands and more contracts will come in soon. Our other target market is the Asian
market mainly China, South Korea and Japan with discussion in earnest.
 iv. Environmental aspect: With our target of planting 6000 Avocado Trees in the first phase,
we will not use a single factor that might have any negative impacts to the environment.
We will encourage the organic fertilizer and accredited pest control mechanism as
directed. We will strictly stick to the principles of organic agriculture and Permaculture.

v. Managerial aspect: The project will be run by incorporating professionals in each and
every sector of operation in collaboration with employees sourced from areas of
operations, well trained, and ready to induct and apply skills to small scale farmers the
principles of Permaculture and organic agriculture practically in the field, and also be
active towards Climate change adaptation and mitigation plans.

8. SWOT ANALYSIS

Strengths Weaknesses
 Poor sea freight connections
 Established Markets in the EU and the
 Long shipping times
GCC states  Poor post-harvest management
 Long history of exporting horticulture produce
 Lack of discipline in the cool-chain & the
 Proximity to the GCC states
 Good climate that allows regular annual yields
supplychain
 Exporters experienced in out-grower
 Too many opportunist exporters (reputation
management risks)
 Strong government support
 Long transport time from established
pack- houses to sea ports
 Good air connections with Europe and the GCC
Opportunities Threats
 Increased competition from well-organized
 Consumption is increasing in the UK
SouthAmerican efficient and low cost
and inEurope
exporters
 Increasing demand by joining the Peruvian
 Increased competition from USA shippers
and other exporters in generic promotion
 Embrace “organic” and Fairtrade to take
now operating in Europe
 Threat from new suppliers denied entry to
advantage of the opportunity for higher
returns the USA because of fruit fly diverting
 Consolidate the production base to form
exports to Europe
 Imports from Dominican Republic to USA
larger marketing organizations to
have recently been banned and the country
capitalize on EU importers preference for
may target Europe as an alternative market
dealing with larger organizations to
 The Dominican Republic has established
guarantee supply
a reputation for “organic” produce and
 Introduce effective discipline throughout the
may dominate the “organic” avocado
supply and marketing chains to establish a
market in UK
reputation for quality and management
 Resurgence of Israeli exports to EU
excellence  Australian exporters targeting the GCC states
 Through effective training improve post-  Asian fruit fly Bactrocera invadens if
harvest management to satisfy importers found prevalent in Kenya could result in
requirements an EU ban
a) METHODOLOGY:

Our preferred method of project appraisal.

8.1 Discounted Method:

It measures present value of future money. It includes:

1. Net present value (NPV):

It is used as discounted cash flow measure of absolute profitability. NPV is computed as
present worth of incremental benefits (cash inflows) less present worth of incremental cost
(cash outflows) due to farm enterprises.

Where,
Rt = net cash inflow-outflows during a single period t.
i= discount rate (%) t= time in years.
For a farm to be feasible NPV should be positive (+).
The decision rule:
Accept, if NPV > 0 Reject, if NPV < 0
Accepting positive NPV projects enhances stockholders’ wealth.
Advantages: • Cash flow based.
• Additivity: The NPVs of individual projects can be added to arrive at the cumulative
NPV for the business or division as a whole NPV (A+B) =NPV (A) +NPV (B)). • NPV
uses all cash flows for the project, not just some cash flows up to a particular date.
• Accounts for the time value of money, as all cash flows are discounted at the
appropriate rate.
• Allows for expected term structure and interest rate shifts: NPV can be computed using
time-varying discount rates.
• Linked to the objective of value maximization: Provides a criterion based on an
absolute number that represents the increase (or decrease) in the value of the firm if the
project is accepted.
Biases, limitations, and caveats: • An absolute criterion, so does not
factor in the scale of the project.
• Does not control for the life of the project, so when comparing mutually exclusive
projects with unequal lives, the NPV rule is biased towards accepting longer term projects.
9. FINANCIAL PLAN:

Worked out financial plan is as per the attached excel presentation.

feassibilty analysis
on Rwathia agrofarm project.xlsx

Considerations (notes to the accounts):

 Avocado will start fruiting after 4 years and the discounted export price of 4kg packet fresh
Hass avocado is equivalent to 8 USD.

 Dollar exchange discounted to Ksh 100 per dollar

 Each acre avocado tree taken to accommodate 120 trees therefore 50 acres will fit 6000
trees. Average production per tree at the first year of fruiting to be 20kg with a 50% increase
in the consequent years.

 Pack house activities factored at a minimum export of two (2) forty foot containers
maintained over the period of ten years with increment experienced as from 4th year by the
harvest obtained from the orchard.

 All fruits obtained from the orchard to be ripened and frozen cryogenically as per
international standards and thereafter exported at price discounted to as low 3 USD per
kilo.

10. CONCLUSIONS:

The net present value (NPV) for the project is found to be positive at Ksh 1,311,632, Ksh
36,136,310 and Ksh 92,556,489 despite having discounted the present values of cash flows
discounted by 40%, 30%, and 20% respectively:

 Having factored an incremental cost at minimum of 10% per annum and held the sales price
constant and:
 Having absorbed the working capital by amortization over the 10 years under review.

This leaves us with an ideal platform to conclude beyond reasonable doubt that the project
is feasible and worth undertaking.
11. REFERENCES:
Carman, H.F., T.L. Saitone, and R.J. Sexton 2013. Five-year evaluation of the Hass avocado
board’s promotional programs: 2008-2012. Agricultural and resource economics update
17: 1-55.
González-Estudillo, J.C., J.B. González-Campos, F. Nápoles-Rivera, J.M. Ponce-Ortega, and
M.M. El-Halwagi 2017. Optimal planning for sustainable production of avocado in mexico.
Process Integration and Optimization for Sustainability 1: 109-120.
Lahav, E., and A. Kadman 1980. Avocado fertilization, International Potash Institute
Menzel, C.M., and M. Le Lagadec 2014. Increasing the productivity of avocado orchards using
high-density plantings: A review. Scientia Horticulturae 177: 21-36.
Moore, N.Y., E.M. Pint, and L.S. Dixon 1993. Assessment of the economic impacts of California’s
drought on urban areas. RAND, Santa Monica, CA.
Mosquera, M., E.A. Evans, and R. Ploetz 2015. Assessing the profitability of avocado production
in south Florida in the presence of laurel wilt. Theoretical Economics Letters 5: 343.
Wijana, S., U. Effendi, and E. Setiati 2012. Optimation of avocado fruit added on the ice cream
product of coconut milk. Jurnal Teknologi Pertanian 2.
12.Latest market analysis is as follows.

BENSON W. GITIGI

OPERATIONS DIRECTOR.

B.COM(FINANCE)/C.P.A.K