64.

PROFILE ON PROCESSING OF TURMERIC

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TABLE OF CONTENTS

PAGE

I. SUMMARY 64- 3

II. PRODUCT DESCRIPTION & APPLICATION 64 – 3

III. MARKET STUDY AND PLANT CAPACITY 64 – 4

A. MARKET STUDY 64 – 4
B. PLANT CAPACITY & PRODUCTION PROGRAMME 64 – 7

IV. RAW MATERIALS AND INPUTS 64 – 8

A. RAW & AUXILIARY MATERIALS 64 – 8
B. UTILITIES 64 – 9

V. TECHNOLOGY & ENGINEERING 64 – 9

A. TECHNOLOGY 64 – 9
B. ENGINEERING 64 – 10

VI. MANPOWER & TRAINING REQUIREMENT 64 – 12

A. MANPOWER REQUIREMENT 64 – 12
B. TRAINING REQUIREMENT 64 – 12

VII. FINANCIAL ANLYSIS 64 – 13

A. TOTAL INITIAL INVESTMENT COST 64 – 13
B. PRODUCTION COST 64 – 14
C. FINANCIAL EVALUATION 64 – 15
D. ECONOMIC BENEFITS 64 – 16
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I. SUMMARY

This profile envisages the establishment of a plant for the processing of turmeric
with a capacity of 150 tonnes per annum.

The present demand for the proposed product is estimated at 460 tonnes per annum. The
demand is expected to reach at 828 tonnes by the year 2022.

The plant will create employment opportunities for 19 persons.

The total investment requirement is estimated at about Birr 2.86 million, out of which Birr
1.1 million 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 1.41 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

Turmeric is an East Indian perennial herb "Curcuma longa" with a large aromatic deep
yellow rhizome. Processed turmeric is the cleaned, boiled, sun-dried, and usually pulveized
rhizome of the turmeric plant used as a colouring agent, a condiment (as in pickling and in
curry powder), or a stimulant.

Processed and packed Turmeric is a resource based product that has an export potential.
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III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country's requirement for turmeric is essentially met through domestic production.
However, data on domestic production of the product is not readily available. Therefore, the
Revised Report on the 1995/96 Household Income, Consumption and Expenditure Survey is
analyzed in estimating the demand for turmeric. Table 3.1 depicts the average amount of
turmeric consumed by different expenditure groups in urban and rural areas according to the
survey finding.
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Table 3.1
DOMESTIC CONSUMPTION OF TURMERIC

Number of Average Total

Income Individuals Annual Annual
Group in the Consumption Consumption
Group (gram) (kg)
< 600 17,253 - -
600 - 999 125,904 10 1,259
1000-1399 432,547 7 3,028
1400-1999 580,104 18 10,442
2000-2599 4,217,465 21 88,567
2600-3399 649,8555 17 110,475
3400-4199 784,4772 25 196,119
4200-5399 1,088 ,5614 26 283,026
5400-6599 800,7978 32 256,255
6600-8999 881,7091 41 361,501
9000-12599 511,4961 44 225,058
12600-16199 1,765,555 47 82,981
16200-19999 673,706 68 45,812
> 20000 972,722 57 55,445
Total 55,954,227 1719,969

Source: CSA, Revised Report on the 1995/96 Household Income Consumption and
Expenditure Survey, 2001.

As can be seen from Table 3.1, the total consumption requirement of households for turmeric
is 1,719,969 kg per annum. Given a total population of 55,954,227 at the time the survey was
conducted, the per capita consumption of turmeric is computed to be 0.03 kg. Assuming the
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regional market constitutes the viable market for the product, the present demand of
households for turmeric is estimated at 460 tons using the total population of the region for
2007.

2. Projected Demand

The consumption of processed turmeric is mainly associated with the urban population.
Accordingly, a growth rate of 4% that corresponds to the rate of urbanization in the country
is considered in projecting the demand for turmeric. The projected demand for the product is
shown in Table 3.2.

Table 3.2
PROJECTED DEMAND FOR TURMERIC (TONNES)

Year Projected
Demand
2007 460.00
2008 478.40
2009 497.54
2010 517.44
2011 538.13
2012 559.66
2013 582.05
2014 605.33
2015 629.54
2016 654.72
2017 680.91
2018 708.15
2019 736.47
2020 765.93
2021 796.57
2022 828.43
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3. Pricing and Distribution

The retail price of turmeric is Birr 25 per kg. Allowing margin for wholesale and retail a
price of Birr 20 per kg is recommended for the product of the envisaged plant.

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

B. PLANT CAPACITY AND PRODUCTION PROGRAM

1. Plant Capacity

The annual production capacity of the project is 150 tonnes of processed turmeric based on
300 working days and single shift ( 8 hours) per day.

2. Production Program

The production program is indicated in Table 3.2. At the initial stages of production, the
project may require some years to penetrate the market. Therefore, in the first and second
year of production, the capacity utilization rate will be 70 and 90%, respectively. In the third
year and thereafter, full capacity production shall be attained.

Table 1
PRODUCTION PROGRAM

Description Production Year

1 2 3-10
1 Clove powder (ton) 105 135 150
2 Capacity utilization rate (%) 70 90 100
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IV. RAW MATERIAL AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw material is turmeric. Turmeric is a spice from the rhizome of a perennial
herb. The spice is used as a food coloring agent as well as coloring material in the textile,
pharmaceutical industries. Turmeric grows best if the precipitation is between 1000- 2000
mm on elevation up to 2000 m. The crop requires warm and humid climatic conditions.
Turmeric need well drained soil usually loamy textured, fertile soil. The moisture
requirement of the crop is very critical through out the crop growing period for good
management of turmeric production it is advisable to rotate the crop with other cereals.
Turmeric could be interplant with castor bean, coffee, and with other perennials. The
propagation of the crop is vegetative, thus, the rhizomes should be selected and keep the
rhizomes till it sprout and then, plant it in the well prepared elevated plots. Based on the
available information it is recommended to select rhizomes 6 – 8 cm to get vigorous seedling.
Time of planting is recommended to be at the beginning of the rainy season.

Turmeric need fertile soil thus, it requires well-manured or well-fertilized soil for good
harvest. Turmeric plant matures 7 – 9 months after it is transferred to the farm plots. As it is
matures the color of the leaves should be yellowish green.

According to the resource potential study, Kaffa, Bench Maji and Sheka Zones are with high
potential; Konta S/w, Guraghe, Debub Omo and Gamogofa zones are with medium potential
for growing turmeric. Derashe S/W, Basketo S/W, Wolayita and KAT zones are also suitable
for growing turmeric.

The other raw material for processing Turmeric is packing materials, which are locally
available.
The annual raw and auxiliary materials requirement and cost are indicated in Table 4.1.
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Table 4.1
RAW AND AUXILIARY MATERIAL REQUIREMENT & COST

S.No Material Unit Qty Cost (‘000 Birr)

1 Turmeric Ton 165 3,300
2 Packing material Kg 4500 112.5
Total 3,412.5

B. UTILITY

Water and electricity are the utilities of the project. The annual utility requirement and its
cost are shown in Table 3.

Table 3
ANNUAL UTILITY REQUIREMENT & COST

S.No Utility Unit Qty Cost (‘000 Birr)

1 Electricity kWh 120,000 56.88
2 Water M3 1,000 10
Total 66.88

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Process Description

Turmeric seeds will first be cleaned and washed manually and then sun dried. Solar drying is
the cheapest and popular mode of drying agricultural products.
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The dry turmeric seeds enter to the milling unit in which milling and pulverization operations
are carried out.

The power is then sifted and tested according to standard procedures depending on the target
market. It is then packed for sales.

2. Source of Technology

Turmeric processing plant can be acquired from different suppliers. The following company
could be requested for the offer.

Food and Biotech Engineers

Khwaja, Faridabad, Haryana-121003, India
Phone +91-129-2510924

B. ENGINEERING

1. Machinery & Equipment

The list of machinery and equipment required for the project is indicated in Table 5.1. The
total cost of machinery and equipment is estimated at Birr 1,100,000 of which Birr 916,700 is
in foreign currency.
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Table 5.1
LIST OF MACHINERY & EQUIPMENT

S.No Description Qty

1 Chamber solar drier 1
2 Vibratory screen 1
3 Disintegrator 1
4 Micropulverizer 1
5 Sifting machine 1
6 Weighing and packing unit 1 unit
7 Miscellaneous equipments like Lump
handling bins, storage vessels, Etc. Sum

2. Land, Building and Civil work

The total land requirement of the project is estimated at 1000 m 2 of which the built-up area is
300 m2. Therefore, the cost of building is Birr 450,000. The lease value of land is about Birr
80,000 at a rate of 1 Birr per m2 per annum for 80 years.

3. Location and Site

Since the project is a resource based, it is better located near the raw material source. Masha,
Andiracha, Yeki, Sodo and Saylem woredas are the possible location for the envisaged
Turmeric processing plant due to the suitability of their agro-ecology for growing Turmeric.
Among these, Bue town of Sodo woreda is the best location for the proposed project for its
proximity to major raw material sources and proximity to market center.
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VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER

Table 6.1 shows the list and cost of manpower. The total annual labour cost is estimated at
Birr 201,000.

Table 6.1
MANPOWER REQUIREMENT & COST

S.No Manpower No. Monthly Annual Salary

Salary (Birr) (Birr)
1 General manager 1 3,000 36,000
2 Secretary 1 700 8,400
3 Production head 1 2,000 24,000
4 Accountant 1 2,000 24,000
5 Operator 3 2,100 25,200
6 Labourers 10 3,000 36,000
7 Guards 2 600 7,200
Sub total 19 13,400 160,800
Benefit 3,350 40,200
(25% Basic salary)
Total 16,750 201,000

B. TRAINING

On-the-job training shall be carried out by the experts of machinery suppliers and its cost is
estimated at Birr 15,000.
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VII. FINANCIAL ANALYSIS

The financial analysis of the turmeric processing 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
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 Birr 2.86
million, of which 53 per cent will be required in foreign currency.

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

Sr. Total Cost

No. Cost Items (‘000 Birr)
1 Land lease value 80.0
2 Building and Civil Work 450.0
3 Plant Machinery and Equipment 1,100.0
4 Office Furniture and Equipment 100.0
5 Vehicle 200.0
6 Pre-production Expenditure* 290.4
7 Working Capital 644.9
Total Investment cost 2,865.3
Foreign Share 53

* N.B Pre-production expenditure includes interest during construction ( Birr 140.37 thousand )
training (Birr 15 thousand ) and Birr 135 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 4.07 million (see
Table 7.2). The material and utility cost accounts for 85.45 per cent, while repair and
maintenance take 1.84 per cent of the production cost.
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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 3,412.50 83.81
Utilities 66.8 1.64
Maintenance and repair 75 1.84
Labour direct 96.48 2.37
Factory overheads 32.16 0.79
Administration Costs 64.32 1.58
Total Operating Costs 3,747.26 92.03
Depreciation 212.5 5.22
Cost of Finance 111.98 2.75
Total Production Cost 4,071.74 100

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.
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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 = 36 %
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 8.5% discount rate is Birr 1.41 million.

D. ECONOMIC BENEFITS

The project can create employment for 19 persons. In addition to supply of the domestic
needs, the project will generate Birr 1.12 million in terms of tax revenue. The establishment
of such factory will have a foreign exchange earning effect to the country by exporting the
product.