I.

Executive Summary

This is a New Agro Processing project proposal for ANTONIO CARNEVALE

EDIBLEOIL PRODUCTION AND PROCESSING FACTORY in Dukem town. The
edible oil processing plant will be constructed at 5,000m2 of readily available
land obtained by the promoter, at the city of Dukem, located.25km south east
of the capital.
Following the change in government in 1991, the economic policy in the
country has shifted from centralized planning to a liberalized market-oriented
system of economic management with the objective of initiating the private
sector to spearhead the development of the country using an economic strategy
known as Agricultural Development–Led Industrialization (ADLI). The essence
of this strategy rests in the belief that the Agricultural sector can and should
serve as the driving force for the rest of the economy to make better use of the
available national resources; namely agricultural land and massive working
labor.
More specifically, agriculture is envisaged to play a leading role in the growth of
the economy and the export sector is targeted as a major market outlet.
Concurrently, agricultural growth is on the one hand expected to ensure the
food security of the country and avail necessary resources for the growth and
development of the industrial and service sectors consecutively. As per the
policy industrialization is the ultimate goal and direction and is believed to be
realized through the instrument of ADLI and the industrial development
strategy that focuses pulling out people of the nation from poverty and
backwardness.
The promulgation of liberalized investment laws for the promotion and
encouragement of private investment in particular were among the major steps
taken by the Government to stimulate private sector investment in providing
packages of incentives to domestic and/or foreign private investors.

1
The source of this project idea is the envisaged improvements made at the
Administrative zone especially increased concentration of both foreign and local
investors as a result of private sectors initiatives in general. Therefore, the
source of project idea for this edible oil producing industry is the prevailing
conducive work atmosphere and market location.
And the prevailing financial study conducted reveals that the total financial
requirement of the project is Birr 78 million and the promoter will contribute
Birr 24 (31%) million and the remaining Birr 54 (69%) million is expected to be
financed by financial institution.
The profit and loss statement forecasted for 10 project years also shows that
the net profit of the project will increase from Birr 29 million in the first project
year to Birr 32 million in the last projection period. Besides the cash flow
projection also shows a total cumulative cash balance of Birr 32 million for the
aggregate investment at the level of the first project year and reaches Birr 186
million at the end of the last projection period implying that the project will not
face liquidity constraint to finance its operational cost meeting at the same
time its debt obligation. As well as the Before and after tax internal rate of
return computed based on 10 years projection period is 60% and 55%,
respectively for the project as whole. And finally, the market study conducted
also reveals that there is an ample excess demand that needs to be filled by
new entrant firms and expansion of the existing firms in the industry.

2
II. Background Information
2.1. Vision and objective
2.1.1. Vision
To produce a healthy quality edible oil
2.1.2. Objective
 To produce quality Soya bean edible oil for domestic consumption
 To keep edible oil easily accessible to local consumers
 To contribute in import replacement
 To create employment opportunity and market value chain for oil crop
farmers
2.2. Company profile
2.2.1. Company management profile
The promoter of this project, Geom. Antonio Carnevale as an owner and
general manager of CARCON construction, has rich work experience in doing
business for the last 30 years. Currently, the promoter owns and manages a
construction firm own an investment land of 5000m2 from which 1200m2
developed with construction. With this enrich experience in leading and
managing a successful, we believe that he can achieve the desired goal of the
planned project. (Please also add educational background as well as
management and board membership of Awash bank)

3
4
 III. Opportunities and Risks

3.1. Opportunities

3.1.1. At Country Level

 The country has registered economic growth for more than a decade and there
is a stable political system.
 The federal and regional governments give different incentives such as tax
holidays and better investment policies to encourage investors.
 The country’s overall infrastructure facilities have been recently developed all
over the country.
 Provision of skilled, well educated and specialized manpower from Universities,
and Technical and Vocational Colleges and institutes.
 Existence of government support in allocating funds to investors through
banks.
 Machinery and equipments required for operation of projects are allowed to be
imported duty free.
3.1.2. At Sector Level
 There is urbanization in the country and the life style and eating habits of
people have been changing.
 The purchasing power and income of consumers has improved and thus
consumption of manufactured foods would increase from time to time.
 Availability of the required main raw materials to produce edible oil.

3.1.3. At Company Level

 Character: The General Manager, , Geom. Antonio Carnevale, is energetic,
well experienced and honest person.
 Capacity: The owner and manager of the project , Geom. Antonio Carnevale,
is a well experienced business man. He has been running a construction
business for a very long time and has the capacity to manage the factory as a
whole.

5
 Competence: As it is stated above, in general, the management team of the
business will competent enough to run the intended business. Employing
experienced management team who are experienced in running the same type
of projects can be considered as an asset to the business.
 Capital: the owner can contribute the required equity from the surplus of his
existing construction business.
 Collateral: All the investment outlays to be made on the project site arising
from the plans of its establishments can be a dependable collateral for the loan
the project requires.

3.2. Risks

3.2.1. Sector Risk

The project plans to buy raw materials from local markets which has been
showing a price increment trend from time to time.

3.2.2. Firm Level Risk

Since the product of the factory will be new to the public, the company may
face demand problem especially at the early stage.
3.3. The Risk Mitigating Measures
 Sector related risks: The business should have a constant source of input and
should secure long term contractual agreement of supply of input, to insure
uninterrupted production.
 Firm level risks: In order to mitigate the risk, the business would sell its
products at a comparatively lower price while keeping its quality to get the
attention of buyers.

6
 IV. SWOT Analysis

4.1. Strengths
 The Ethiopian agricultural sector can almost double its production.
 Processing Soya beans provide comparable economic results as the traditional
seeds
 The edible oil processing plant will be constructed at 5,000m2 of readily
available and leased by the promoter, at the city of Dukem, located.25km south
east of the capital.
 The management of the project have ample business experience and well
educated.

4.2. Weaknesses
 Margins on Soya beans are generally too low for inclusion in the cropping plan.
If the climate and soil conditions do not allow growing sesame, soya beans will
be in the cropping plan.
 Even if soya beans are in the cropping plan, the gross farm margin increases
not significantly, mainly below 0.5%.
 Import of raw beans is cheaper than buying domestically produced seeds for
processors.
 Large and medium oil processors have a poor performance.
 Formal oil processors have a market of less than 15%, mainly the urban
regions.

4.3. Opportunities
 The consumption of edible oil will rise due to increase in population and
income
 Ethiopia has suitable climate and growing conditions for soya bean.

4.4. Threats
 Soya beans are new crop for most farmers and edible oil producers.
Introducing these new crops will increase the transaction costs and the

7
 uncertainty of finding suppliers and buyers is high. Many substitutes are
available with lower transaction cost and uncertainty.
 The Ethiopian oil sector is with though competition with imported palm oil.
 Ethiopia has good substitute for soya bean.
 Credit facilities restrict implementing growing crops with best practice yields.

8
V. Market Study

5.1. Overview of the Market for Edible Oil in Ethiopia

The major stake holders in supplying edible oil in the country are categorized
into four major stake holders, Millers/crude sellers, private importers, the
government and private processors with a market share of 15%, 10%, 60% and
15% respectively.
 Millers: Crude Sellers
The oil millers are small enterprises that sell crude noug, sunflower, linseed
and groundnut oil. These are traditionally family-run businesses that use
simple cold-pressing technologies and manual filtering. Their primary targets
are consumers who are traditional users of noug and those without access to a
ready supply of palm oil. Millers account for about 15% of the edible oils
market share in Ethiopia.

 Private Importers:
High Value Oils This group deals with high-value imported sunflower, soybean,
maize, sesame, olive and other oils. They target primarily high income
consumers and foreigners. They occupy the supermarket chain but also have a
strong presence in shops and mini-markets, mostly in bigger towns. Their
market share is 10%.

 Government:
Palm Oil Chain Government has become a direct player in the edible oils
market since 2010. It controls the entire supply chain for palm oil (from import
to the end-consumer). Palm oil accounts for over 60% of the national market.
The major target for this product is low-income consumers in both rural and
urban areas. The price of palm oil is kept minimal partly because of the bulk
nature of the product and partly due to the controlled chain. Despite its
contribution to price stabilization, the current palm oil chain is characterized
by a high degree of irregularity and inconsistency. This, added to other burning

9
priorities for government, means that the palm oil chain will be liberalized
soon, probably via a credible national distribution company.

 Processors:
Refined Sellers Industrial processors include companies such as Addis Modjo,
Health Care, Mulat and Kana. This group deals with fully refined and packed
oils extracted from cotton, Noug, soybean and groundnuts. The primary target
group for them is the middle income customer, usually urban buyers who are
health and hygiene conscious and want to avoid palm and crude oils, but not
able to afford imported brands such as sunflower and soybean oil. The only
product exception is Health Care soybean oil which is competing with high
value imported oils. In addition, this group also makes significant sales to
institutions such as aid and relief organizations. The processors account for
about 15% of the market share.

5.2. Past Supply and Consumption of Edible Oil

On the one hand, Ethiopia exports oil seeds to earn foreign currency and on
the other hand, it imports edible oil to supply its population with cooking oil.
The production of oil seeds and vegetable oil has been growing since 2000. A
major part of the production of oil seeds is exported, while at the same time the
imports of edible oil also increased. The amount of processed oil seeds
increased at a slower pace than the exports. Although the direct consumption
of oils increased, it remained on a low level. The supply of domestically
produced oil increased due to the higher levels of processed quantities. Not
only the human consumption increased but also the quantity for other uses of
edible oils. During the period from 1993 to 2006, the domestic production of
edible oils did not meet the human consumption level and during the last years
the gap widened. Of the total domestic supply 75% is imported, consisting
mainly of palm oil, Soya beans and sun flower oil.

10
The production of oil seeds grew annually by 9%, the export of oil seeds by
25%, the domestically produced edible oil by 6% and the consumption of edible
oil by 6%, resulting in an import growth of 12%.

Domestic production of 'unspecified' edible oil accounts for the major part:
approximately 40%. Although not specified by FAO , given the large production
of linseed and noug, 'non specified' edible oil must mainly consist of these oils.
Since 2003 edible oil imports are increasing fast. The consumption of
unprocessed oil seeds has grown from 0.2 in 1993 to 0.6 Kg in 2006. The
edible oil represents approximately 3.5 Kg of unprocessed seeds. In total, the
consumption of oil seeds is around 4Kg per capita per year, or 12 g per capita
per day.

A major part of the export earnings from oilseeds is needed to import edible oil.
In 2008, a year with higher agricultural prices, the earnings and the
expenditure was at the same level. During the period from 2003 to 2007, the
export earnings grew faster than import expenditure of oil or oilseeds. In recent
years the value of imported edible oil seems to grow faster than the export
value, narrowing the gap between export earnings of oilseeds and import costs
of edible oil. Domestic demand is expected to grow the coming years due to
population growth and income growth. The challenges for Ethiopia are,

1. A higher domestic production of edible oil instead of exporting oil seeds,

there by generating more value added and employment.

2. A higher production of seeds, enabling exports to remain on the same level

or even grow and a higher domestic edible oil production.

In the table here under the past supply and consumption of edible oil from
2008 to 2016 is depicted.

11
 Domestic Growth
Year supply (Mt) Import (Mt) Total Consumption (Mt) rate
2008 50,000 125,000 175,000

2009 55,000 151,250 206,250 18%

2010 60,500 183,013 243,513 18%

2011 66,550 221,445 287,995 18%

2012 73,205 267,949 341,154 18%

2013 80,526 324,218 404,743 19%

2014 88,578 392,304 480,882 19%

2015 97,436 474,687 572,123 19%

2016 137,500 550,000 687,500 20%

Average 19%

The total annual expenditure and volume of edible oil consumption is

estimated to be 11 billion birr and 394 million kg, respectively. The industry
has shown a steady growth of 19% CAGR over the period from 2008 to 2016.
Three-fourths of current edible oil demand is satisfied by imported oil, and the
growth trend in imports is 21% compared to 10% for domestic oil. Despite the
steady growth, current per capita consumption (4.2 kg/year) remains far lower
than the global average (23.5 kg/year). The low per-capita oil consumption,
added to the rapid economic growth and population increase (9.7% and 2.3%
per year respectively), shows that the industry has a favorable outlook for
demand growth over the medium- to long-term.
A major challenge is to provide the growing population with a large quantity of
food, especially fats and oil. The growth of the population is 2.3% which will
result in a demand increase of 34% in 10 years time, if the quantity per capita

12
remains at a constant level. The increase of fat and protein consumption per
capita per year has been 2% which results in an additional demand of 22%.
These two developments combined results in a 65% higher demand for food in
10 years time.

Palm, noug, cotton, groundnut and linseed oils are the most consumed oils,
with estimated respective shares of 70%, 16%, 14% and 9%. Palm, soybean
and sunflower oils are the major imported oils.

5.3. Projected Local Supply and Demand for Edible Oil

As the trend analysis conducted in the above section shown consumption of

edible oil increases by 19% and local production by 10% every year. Projection
of local supply and demand for edible oil is made from the selected base year
actual local production and consumption of year 2016. Based on these facts
the projected local supply and demand for edible oil has been depicted in the
following table.
Projected local supply and Demand
Year Projected local supply (Mt) Projected Demand (Mt)
2018 166,375 973,569
2019 183,013 1,158,547
2020 201,314 1,378,671
2021 221,445 1,640,618
2022 243,590 1,952,336
2023 267,949 2,323,279
2024 294,743 2,764,702
2025 324,218 3,289,996
2026 356,640 3,915,095
2027 392,304 4,658,963
2028 431,534 5,544,166

13
Therefore the variation between the forecasted demand for edible oil and its
forecasted local supply shall be fulfilled through import or additional local
production or both. The difference in balance between the projected local
supply and demand for edible oil is shown in the following table.

Projected import or required additional local production in tonns

Year Projected Import
2018 807,194

2019 975,534

2020 1,177,357

2021 1,419,173

2022 1,708,746

2023 2,055,331

2024 2,469,959

2025 2,965,778

2026 3,558,456

2027 4,266,660

2028 5,112,632

5.4. Soya bean meal cake for animal feed

Ethiopia has the largest livestock population in Africa and is ranked among the
top eight countries in the world. Livestock provide food, draught power, bio-
fertilizer and fuel, cash income and wealth accumulation for millions of
Ethiopian farmers. The regions of Oromia, Amhara and SNNPR put together

14
account for 90% of the total cattle population and 90% of the total number of
milking cows in the country.
Despite the large animal population, the feed industry has been very weak.
Data on market valuation of the national animal feed industry is hard to find.
However, according to estimations, annual industrial turnover and production
are estimated at 0.5 billion Birr (excluding traditional feed production) and
100,000 tons, respectively. At industrial level, soybean and soy cake account
for 15–20% of feed. Looking at the rapid emergence of urban and semi-urban
agriculture in the dairy, fattening and poultry sectors, as well as on-going
depletion of grazing land in the rural areas, prospects for the Ethiopian feed
industry seems strongly positive.
 Non-Mixed Products
This includes selling of the soya-bean cake at the factory gate, selling oilcake to
end-users, or multi-purpose traders engaged in sales and distribution of oil
cake. They deal with raw produce and usually operate in rural and smaller
towns where access to industrial processed feed is limited or expensive and
where there is a shortage of grazing land or fodder. The principal users of these
products are households engaged in dairy or fattening, usually as a side
business. The market share of non-mixed products is about 60% of the oil cake
(Noug cake) trade due availability.
 Mixed Products
There are 15 commercial livestock feed manufacturers. Common ingredients
used by animal feed processors are corn, soybean, oil cake and wheat bran.
Compared to other products, linseed cake is widely preferred due to its high
water-absorption capacity and nutritional content.
However, noug cake is the most widely used because of its availability. Most of
the animal feed processors in Ethiopia are located in Addis Ababa, Adama or
Debre Zeit. Notable individual players are Alema Koudijs, Akaki Feed and
Elfora. These feed processors use 15–20% soybean or soy by-products in their
feed mix. The primary end-buyers of processed animal feed are commercial

15
farmers engaged in poultry, dairy, swine and fattening businesses
predominantly located in and around Addis Ababa.
ACOPP will sell its oil cake byproduct as Non-mixed or mixed product both at
factory gate level as well as for those companies which are engaged in mixed
products most of which are in a close vicinity to the proposed project location.

5.5. Pricing of Edible oil

Prices of imported oil do not differ between regions, but locally produced oil is
up to Birr 2.4 more expensive in Addis Ababa compared to rural areas.
Consumer prices of local cooking oil are higher than of imported oil cooking oil.
Most of the imported oil consists of palm and Soya Bean, this means that
Ethiopian consumers prefer the local oil, mainly based on linseed and Neug. In
the following table the weighted average import price in $/MT of major edible
oils are presented.

Average Growth
Oil Types 2010 2011 2012 2013 2014 2015 rate
0.46%
Palm Oil 1019 1414 1306 1042 1079 948
Sunflower 5.86%
oil 1285 1755 1678 1845 1759 1615
-0.25%
Soy Oil 1414 1770 1841 1554 1649 1303
2.96%
olie oil 2435 3185 2937 2603 3463 2428
Sesame 50.75%
oil 1649 1101 2172 5327 2915 5531
Source:-ERCA and own computation
The above data table shows that Soy oil the second chipset and its price is
almost stable of imported edible oil while sesame oil is the most expensive one
and its price has been increasing fast. In this study the mark up pricing
system will be used without ignoring the price trend for edible oil. In the trend
analysis, the import price is considered for the sole reason of considering the
worst case scenario.

16
VI. Technical Analysis

6.1. Production Process

6.1.1. MILLING
 Introduction
The objective of the milling process is the maximum economic extraction of
crude oil and the production of residual meal and cake.
Most mills concentrate on one species of oilseed, but raw material availability
and market conditions often make it attractive for the mill to process several
species. With some care at the design stage the same basic processing
equipment can be used for most oilseeds with minor adjustments. Some stages
such as delinting or decorticating are essential to only specific species and
their installation and use in a particular mill depend on the most likely species
mix of raw materials.

 Traditional Methods
Traditional systems rely on animal or manual power to crush the seed. In most
cases, grinding is performed by some combination of simulated pestle and
mortar. The resulting paste is heated and the oil extracted by pressing.
Extraction rates between 28 and 60% of oil content can be obtained depending
on the original oil content of the seed being crushed. The residual cake usually
contains about 10% oil.

 Current Milling Systems

Oilseed milling processes is common used today are based on one of two
principles. The first is the mechanical expelling of oil from prepared seed under
pressure. The second is solvent extraction in which the seed is immersed in
liquid, usually hexane, in which the oil dissolves. The solvent is later boiled off
and condensed for re-use, and the extracted oil recovered.
Based on these principles of mechanical and solvent extraction, three milling
systems or configurations are used. The mechanical system, which relies solely

17
on mechanical pressing, uses one pressing to obtain as much oil as possible. In
the more modern direct solvent process oil is extracted without pressing.
Finally, the pre-press solvent process uses a combination of mechanical pre-
pressing followed by solvent extraction.

In terms of output, the three systems perform differently. Those systems using
solvent extraction techniques obtain more oil from the seed. Mechanical
presses usually produce a cake containing about 5% oil, while solvent
extraction produces a meal with less than 1% oil.
The high-pressure continuous screw press has some advantages over solvent
extraction. These include lower capital costs, greater flexibility among crops,
shorter construction period, simpler process control, lower operating skill
requirement and less fire risk. Disadvantages, in addition to lower oil recovery
rates, include high power consumption, high mechanical wear, and the need
for skilled maintenance to ensure efficient operation.
Generally the single screw press is used for capacities of up to 200 tons of raw
material per day and is best suited to species with high oil content. The higher
oil extraction rates of the solvent processes have to be balanced against their
larger capital investment, their relative complexity, their need for flammable
solvents, the unsuitability of the process for certain oilseeds and the relative
market values of residual cake and meal.
Advantages of pre-press solvent extraction over other processes include having
about one sixth of the maintenance costs and double the capacity of "hard
press" screw presses and about half the solvent requirements of a direct
solvent plant. This combined system is generally used for species with oil
content over 25%, such as castor bean, sunflower, groundnut, rapeseed and
safflower.

 Storage

18
When storing seed, adequate ventilation is essential, as is the control of
moisture and temperature. Seed deteriorates in prolonged storage and oil
quality is impaired. Among other changes, the free fatty acid (FFA) content of
the seed rises leading to higher refining losses. In addition, high moisture
content will reduce processing efficiency, while too much heat can damage both
oil and seed. Certain species are particularly subject to storage losses (i.e.
fungal infestation of groundnut which produces afflatoxin).

As domestic supply will be seasonal and may be supplemented by bulk

imports, raw material storage facilities are required to ensure adequate mill
capacity utilization.

 Cleaning

Unless there is reason to suspect the presence of foreign matter that may affect
storage of the seed, the usual practice is to clean seed just before processing.
Rotary or table sieves,
combined with fans or cyclones, remove sand, stalks, leaves, and other plant
debris. Passing the seed over magnets removes metal fragments. One
important effect of cleaning is reduced wear and tear on milling equipment.

 Decortication

Separation of the hull or husk from the seed before the oil is removed normally
results in increased extractor capacity and higher oil yields, (for example,
sunflower crushing capacity can be increased by 15-19% using decorticated
seed) Loss of oil through absorption by the husks is also avoided. Decortication
involves breaking the seeds and then separating the husks from the 'meats' by
air aspiration. Decortication may not be justified for some of the smaller seeds,

19
 or may not be desirable as in the case of flaxseed where much of the oil is in
the husk.
If the meal is to have a low-fibre content, then hulls will be removed from some
oilseeds which are not normally decorticated (such as soybean). Alternatively,
the meal can be decorticated after extraction through a sieving process called
'meal defibration'.

 Pre-treatment

Before oil extraction, preparation of the seed to ensure maximum oil recovery
usually involves three stages:

 The seeds are broken and reduced in size in serrated roller mills.
 The broken seeds are flaked, or thinly pressed, the object being to fracture the
seed coat and rupture the oil cells. Thin flakes are critical to the subsequent
processing which depends on a high surface/volume ratio.
 To extract the maximum amount of oil the dehulled seeds or flakes are 'cooked'
or 'conditioned'. Heating in cookers coagulates the proteins in the seed,
plasticizes the seed for easier flaking, and frees the oil for efficient pressing. In
cottonseed, it also binds gossypol, which is toxic to certain animals such as
swine and poultry. The precise duration and temperature of this cooking
depends on the seed variety and its moisture content. Following cooking, the
flakes are dried before extraction. Care is needed to avoid over- or under-
cooking since these will affect the quality of the refined oil, its colour, and the
nutritive qualities of the cake or meal.

 Solvent Extraction
Oil extraction from cake by the solvent process involves transferring the oil
from the cake into a solvent (usually hexane), and then separating the oil from
the solvent through distillation.

20
Less than 1% of the oil remains in the meal after extraction if the seed has
been suitably pressed and pre-treated. The quality of the oil thus extracted is
equal to that of expelled oil and it is suitable for subsequent refining
operations. In fact, since minimum heat is used the risk of discolouration in
the oil is greatly reduced as is the risk of cooking damage to the protein in the
meal.
The object in solvent extraction is to remove as much as possible of the oil from
the cake, with a minimum of solvent. This is achieved most efficiently by
continuous counter-current extraction.
In the extractor, the solid oil-bearing material is conveyed in the direction
opposite to the solvent. The extracted meal leaves at one end, and the miscella
(solvent-oil mixture) leaves at the other. Of the two methods, percolation and
immersion, the former is most widespread. Usually the conveyer, which may be
a chain pulling product along a longitudinal screen, or a series of buckets with
perforated bottoms, moves through sprayed solvent which percolates through
the cake, absorbing, and washing the oil through the perforations or sieves. As
an alternative, the extractor may be of deep bed design consisting of a vertical
cylinder divided into pie-shaped sections. Each of these sections, (with a bed 2
to 2.5 meters high) is sequentially charged with flakes, washed in a counter-
current fashion by a downward percolating miscella, drained, and unloaded. In
a rotary basket extractor, the loading, unloading, and miscella solvent spray
mechanisms are stationary while the basket carose rotates. In a stationary
basket extractor, the loading, spray and unloading mechanisms rotate while
the basket is still. The immersion system differs in that the cake moves
counter-current through a trough of solvent. Depending on the seed species,
the process may vary and use a combination of the two methods.
The determining factor for the capacity of solvent plants is the size of the
extractor. The minimum capacity for viable operation should not normally be
lower than 100 tons of prepared seed per 24 hours.

21
Solvent extraction plants need special facilites for storage of the solvent. Since
it is flammable, the safety features of the solvent's storage and use need careful
attention. Based on continuous efficient operation, losses of solvent are in the
region of 2-3 kg per ton of cake or seed. In practice, losses of solvent are higher
for small plants and lower for very large plants.
Continuous solvent extraction plants require skilled operation by a small staff
of one or two operators per shift. The plant consists largely of the extractor and
the desolventizing units that resemble a small chemical plant. The mechanical
part of the plant causes relatively few problems, but the instrumentation and
electrical control systems tend to be sophisticated and they require skilled
maintenance.
The solvent extraction plant proper requires a relatively small area. It is
common to erect the plant in an open building with a roof and minimum
cladding on the sides to allow free air ventilation. Around the building there
should be a safety zone, and a wall or fence. Motors, switches, instruments, or
tools within this area should be appropriate to the inflammable nature of the
solvent. Adequate cooling water must be available for the condensation of all
solvent vapours in case of power failure.

 Desolventizing

Both the meal and the oil produced from the solvent process need to be
desolventized. The oil is freed from the miscella in a series of stills and
stripping columns, and the solvent condensed for re-use. The oil is cooled and
filtered before leaving the plant for storage or further treatment.
The extracted meal is drained in the extractor for a short time, but after
discharge, it is still wet with solvent. The wet mea ("Marc", typically 30-35%
solvent) is freed of solvent using
steam-jacketed 'desolventizer-toasters', into which steam is injected. The
solvent is evaporated from the meal, and condensed for re-use.

22
  Filtration

After extraction, the crude oil is allowed to settle so that fine particles of the
original raw material can be removed by filtration.

 REFINING
The crude oil produced by a mill is the 'end product' in some operations.
However, in most new investments, a refining proces may also be considered.
Its object is to produce an oil that is bland, light-coloured, and without odour
or flavour. World trade occurs extensively in both crude and refined oils. The
value added potential of new refinery investments may be adversely affected by
surplus capacity in established refineries, a situation which prevails at the
time of this writing. It is important to reduce to a minimum any losses of oil
during the refining process. Each process involving the removal of impurities
inevitably causes a loss of oil. The other major source of oil loss is poor storage
and handling during milling which increases the free fatty acid composition of
the crude oil.
Vegetable oil loses some of its natural anti-oxidants durinc refining, and care is
needed especially during storage, packina and when processing in batches to
prevent oxidation.

* Refining Systems
Crude oil contains free fatty acids (FFA) and may also be contaminated with
water, resins, gums, or other decomposition products. The crude oil in this
state is cloudy, dark-colored, strong-flavored, and deteriorates rapidly. The
refining process consists of four basic steps, degumming, neutralization,
bleaching, and deodourizing. In addition to purification processes to remove
the contaminants, color and odor, refining includes other optional processes

23
such as hydrogenation and winterization, which enhance the appeal of the
refined oil for particular markets. In general, refining processes can be either
batch or continuous.
Investment costs are lower for batch systems, but they tend to have high labor
and operating costs. Continuous systems, although more efficient and less
labour intensive, require a higher level of skills for their operation. The
minimum daily oil production justifying continuous production is about 15-20
tons of crude oil. For smaller quantities, especially if different types of raw
materials are to be processed, batch plants are preferable.

 Degumming
Crude oil contains a number of finely dispersed or dissolved constituents that
can be hydrated or coagulated to form gums. The need for this procedure is
dependent on the type of oil being processed and desired end product, and it
may be combined with the neutralization process. When performed, hot water
is added to the oil. The phosphatides are hydrated by the water, and the acid
sludge is separated by settling or centrifuging. The gums are vacuum dried,
cooled and stored for additional processing of commercial lecithin.
 Neutralizing
Degummed oil usually contains between 0.5 and 5% free fatty acids and the
purpose of neutralization is to reduce the FFA to below 0.05%. The most
common system, alkali neutralization, achieves this reduction by heating the
oil with an alkali solution, usually caustic soda, and removing the resultant
soapstock. Either batch or continuous neutralization procedures can be used.
The mixture of oil and caustic soda is heated, converting the FFA to water-
soluble soaps, which are separated by gravity or centrifuge. Where gravity
settling is used considerable expertise is required to minimize losses. In
addition to FFA removal, neutralization also reduces some of the colouring
compounds, and will remove any gums or phosphatides not removed by the
degumming process. There are two other refining systems currently in use.

24
Miscella refining consists of neutralizing the oil-solvent mixture obtained from
the extraction plant with caustic soda, and separating the soap stock by
centrifuging. It is used primarily in the processing of cottonseed, the oil of
which must be refined very soon after extraction to avoid permanent setting of
dark colors. Soapstock from miscella refining is spread over the marc in the
desolventizer-toaster to recover the hexane, and to increase the caloric value of
the dried meal.
Steam refining relies on the distillation of the fatty acids under vacuum with
steam. In theory it is an attractive method since the FFA are removed from the
oil without the addition of chemicals, thus avoiding the problems of effluent or
residue disposal associated with alkali neutralization. Special precautions are
needed at all stages of production, storage and transportation to safeguard
edible oil quality. Steam is not appropriate for certain oils like cottonseed and
soybean. Within the same plant, different systems are often applied to different
types of oil.

 Bleaching
Market requirements demand that most oils be light-colored. The colour is
improved (ie. lightened) by treating the neutralized oil with bleaching earth, or
a mixture of bleaching earth and activated carbon which absorbs the colouring
substances dissolved in the oil. The bleaching earth containing the colourings
is filtered out of the oil, along with some neutral oil. Oil losses, labour
requirements and steam consumption are higher in a batch system than in a
continuous system. Capital costs are higher for continuous systems.

 Hydrogenation
Hydrogenation is the method used to change liquid edible oils into semi-solid
form which allows their use for shortenings and margarines, increases the oil
stability and reduces rancidity. It enables vegetable oils to be substituted for
traditional solid cooking and baking fats like butter or lard. The process raises

25
the melting point of the oil by transforming unsaturated fatty acids into
saturated forms through the addition of hydrogen.
During hydrogenation, agitated oil is heated - in the presence of a catalyst
(usually nickel) - in a vessel pressurized with hydrogen gas. The gaseous
hydrogen reacts with the unsaturated fatty acids, saturates them to form
stable oils and 'hardened' fats. The process can be controlled and stopped
when the desired degree of saturation (measured as Iodine Value) is achieved.
Hydrogenation can produce fats which are soft (but solidappearing)or fats that
are hard and brittle at room temperature. Most oils and fats produced for
edible purposes are partially hydrogenated. A necessary adjunct to a
hydrogenation plant is a supply of hydrogen gas. This can either be purchased
from outside sources or produced within the refinery by electrolysis.

 Winterization
When oils are cooled they can become cloudy because of crystal formation.
Winterization consists of cooling the oils to a low temperature and filtering out
the large crystals (mostly waxes) which form. Another method, effective but
more complicated and costly, is solvent fractionation in which the oil is
dissolved in hexane or other solvent like alcohols for better crystallization.
Liquid oil losses are fractionally smaller with this method and savings are offset
by extra steam requirements and solvent losses. The solvent method is more
attractive for oils which contain large amounts of solids when cooled.

 Deodorizing
After neutralization, bleaching, and winterizing, the oil usually still contains
impurities giving it odour and flavour. Unless a unique flavour is desirable (as
in olive oil), these components are removed by steam stripping under vacuum.
For effective deodourization, the oil must be heated to a high temperature (160
to 275 degrees centigrade). At lower temperatures, the oil requires longer
steaming periods, and a higher ratio of steam to oil. Methods using the higher

26
temperatures are not suitable for all oils, and are generally used in continuous
systems that hold the oil for a short time.
Consumption of steam and cooling water is high with both batch and
continuous systems, although continuous systems use one third or less steam
than batch systems. Steam consumption will vary for continuous systems, but
as a rough guide, a medium sized plant will need 150-250 kg of steam per ton
of oil, and 70-100 times that of cooling water. Where cooling water is scarce, it
is sometimes recovered by evaporation towers. The distillate is sometimes
recovered as a source of Vitamin E (alpha tocopherol) and other chemicals.
Oil losses in a continuous deodourization system should be about 0.2%, and in
a good batch plant, perhaps 0.3%.
Deodourized oils are often stored under blankets of nitrogen to exclude oxygen
and prevent darkening and deterioration of flavors.

 End Uses
After bleaching, refined oil is ready for packaging and distribution. The most
important consideration when storing or packaging the oil is to provide
protection against contamination from atmospheric adulterants, internal
contamination by water, soaps or heavy metals, over-heating and exposure to
oxygen.
Usually oils are stored in completely closed iron tanks, although stainless steel
or food-grade epoxy coating lined tanks are used when highest stability of the
finished oil is required.

6.2. Marketing Aspect

Product, By-Product Uses
Although a number of different products and by-products of oil milling and
refining can be identified, the two basic products are the crude, refined or
hydrogenated oils, and the oil-cake or meal. Oil is usually the most valuable
product on a unit weight basis. However, typically more total weight of meal is

27
produced than of oil. The average Yield per Metric Ton of Clean Seed of soya
bean is 170 Kg of Crude oil and 810 Kg of cake meal.
Products from milling include crude oil, cake (oil-rich) and meal (mostly protein
and fibre). Crude oil is refined further. Cake is ground into meal or goes
directly to animal feed and meal becomes a constituent of compound animal
feeds. In addition, husks (or hulls), and linters in the case of cottonseed, are
produced.
The principle food uses of refined or hydrogenated oils are for cooking and
salad oils, margarine and shortenings. The main non-food consumers of refined
oils are the paint, varnish, resin, and plastics industries. In-addition, there are
numerous specialized uses in other industries.
By-products of refining include soapstock and lecithins. The value of soapstock
to the soap manufacturer is its fatty aci content which can vary with the
refining process used. Lecithins, derived from phosphatides removed at
degumming, have numerous food and nonfood uses. Their principal food uses
are as wetting or emulsifying agents in products like peanut butter, chocolate,
baked goods, shortenings and instant-type products.
The main non-food applications include stabilizers, antioxidants and
emulsifiers, and dispersants in textiles, rubber, paint and lubricants.

6.3. Other Factors

Site Requirements
The site chosen for the proposed plant must balance between the numerous
factors which characterize the processing operation, the raw materials
situation, and the market structure. The orientation of the plant, in terms of
exports or raw materials supply, influences the transport and handling
requirements.
Oilseed processing utilizes large quantities of steam, water (for cooling), and
electrical power.

28
Availability of road, rail, or water communication links is vital, both for rapid
distribution, and for raw material procurement. For rapid access to regional
and world market information, phone, or other telecommunication facilities are
needed.

Space Requirements
Local needs for space vary with the scale of the plant. Adequate space is
needed for:
- Storage of raw materials (may be substantial, depending on the growing
period and rainfall patterns).
- Pre-treatment and pressing.
- Extraction (special safety requirements for solvent).
- Meal treatment (bagging, pelletizing).
- Storage of end products.
- Refining plant.
- hydrogenation plant (optional).
- soap-splitting plant (optional)
- bottling facilities
- Administrative offices.
- workshops
- storage for spare parts (very important)
- quality control laboratory
- solvent tank farm
- storage of containers and miscellaneous supplies.

6.4. Raw and Auxiliary Material

The principal raw materials of the project are Soya bean, caustic soda, and
bleaching powder. The agro climatic condition of Ethiopia is suitable for
growing oil seeds, specifically soya bean. So these oil seeds are abundantly
found in different regions like SNNPRS, Oromia, Gambella and Benishangul

29
regions. Caustic soda can be obtained from caustic soda Share Company found
in Zeway while common salt from Afar region (Afdera). Bleaching earth can be
sourced from Adami Tulu Pesticide Processing Share Company. The other raw
materials are imported. The refined oil is packed in steel drums (200 lt). As the
main raw material of the project is Soybean oilseed assessing its availability is
important.
Production of soybean is expected to rebound and continue its upward climb in
order to meet some of the increasing local demand for edible oil and soybean
meal for livestock feed, most notably soybean meal for poultry production.
These anticipated increases in production will come with improved yields and
expanded acreage planted in soybeans, some of which will be done on
commercial farms.
Most of this growth in production was due to an increase in the area planted
and to a lesser extent improved yields. The expansion in area planted was
largely attributed to the increasing, but still small number of large-scale
commercial farms producing soybeans, which account for about half of total
production.
Soybeans contribute nearly 9 percent to the country’s total oilseed production
and account for only 4 percent of area planted to oilseeds. The main soybean-
producing areas are in the western part of the country in the Oromia and
Benishangul Gumuz, and to a lesser extent the Amhara region. In these
regions, the top-producing zones are Illubabor, Horogudru Wellega, East and
West Wellega, Metekel, Assosa, Kemashi, Awi and West Gojjam. In the following
table production of Soybean from 2009/10 crop season to 2015/16 are
presented.

30
 Trend of Soybean production in Ethiopia
Crop Season Production (MT) Production Growth Rate
2009/10 7205
2010/11 15824 120%
2011/12 35880 127%
2012/13 63653 77%
2013/14 61025 -4%
2014/15 72184 18%
2015/16 66000 -9%
Average production growth rate 55%
Source: CSA and FAS Addis Ababa
However, it is foreseen that soybean is available locally, the distance from the
central market in Addis Ababa is over 500 km. The total quantity of raw and
auxiliary materials requirement for the project under consideration is depicted
in the following table.

Raw and Auxiliary Materials

Types of Unit Total Quantity required Unit Cost
raw Quantity/ton of at full capacity
material Soya Bean seed
Soya Bean Ton 1.02 9180 9000

Caustic Kg
Soda 2 18,515 30

Bleaching Lump
earth Sum   50917

31
6.5. Utilities
Electricity, furnace oil and water are utilities of the envisaged project. he
following table indicates the annual utility requirement and cost at full
capacity. Process water shall be supplied by submersible pumps installed by
the project.

Sr. Utility Unit Total Unit Total cost at

Quantity/ton of Quantity cost Full capacity
edible oil required
No. production
1 Electricity kWh
7,200,000 3,409,920
800 0.4736
2 Furnace oil Lt 390,000 2,277,600
43 5.84
3 Water M3 1,500,000 4,875,000
167 3.25

10,562,520
Total

6.6. Organizational Structure, Manpower and Training Requirement

A. Organizational Structure

The organizational structure has been designed in such a way that there would be a
General Manager at the top of the organization followed by Project manager who has
three office heads namely; Commercial Head, Administrative & Finance Head and
Production and Technical Head.

32
 The proposed organizational structure of the company is depicted below.

B. Manpower Requirement

Manpower requirement of the plant is 58 persons, of which 29 are direct

production workers and the rest are administrative and supervisory staff.
Details of manpower requirement and estimate of annual expenses for salaries
is presented in the following table.

Ser. Monthly
No. Job Title Number salary/person
1 General Manager 1 10,000
2 Project Manager 1 8,000
3 Secretary 2 1,500
4 Finance & Admin Head 1 6,000
5 Accountant 2 2,000
6 Personnel officer 1 2,000
7 Accounting clerk 1 1,000
8 Driver 3 1,000
9 Guard 4 600

33
 10 Cleaner 6 600
11 Commercial Head 1 6,000
12 Sales person 2 2,000
13 Purchaser 2 2,000
14 Store Keeper 2 1,500
Production and Technical
15 Head 1 6,000
16 Machine operators 5 2,200
17 Assistant Machine operators 5 1,500
18 Laboratory Technicians 2 2,200
19 Mechanic 2 2,200
20 Electricians 2 2,200
Assistants to mechanics
21 electricians and Lab. 2 1,000
22 Daily labors 10 900
  Total 58 62,400

C. Training Requirement

Workers directly related to production; supervisors, foreman, operators,

mechanics and electricians need to be given on-the-job training for one month
by qualified personnel of machinery supplier. The training cost is estimated at
Birr 80,000.

34
 VII. Financial Study

7.1. Investment Outlays and Source

To realize the establishment of the factory the following investment items
are found necessary.

Financial Plan
Total
Description Bank Loan (Birr) Equity (Birr)

Machineries and Equipment 6,423,097 - 6,423,097

Building & Construction 3,000,000 17,200,000 20,200,000

Vehicles 2,369,000 - 2,369,000

Office Furniture and Equipment - 367,530 367,530.00

Electric Installation , Transformer & 2,711,000
Generator 2,711,000 - .00

Pre- operating Costs (excluding pre-

operating interest) - 320,707 320,707.00

39,452,736.1
Working Capital 39,452,736 - 0

Sub Total 53,955,833 17,888,237 71,844,070

Debt/Equity Ratio Excluding
Preproduction Interest 75% 25% 100%
6,27
Pre Production Interest - 6,272,366 2,366
Total Cost Including Preproduction 24,160,60 78,116
Interest 53,955,833 3 ,435

Debt/Equity Ratio Including

Preproduction Interest 69% 31% 100.00%

7.2. Financial Results:-

(i) Profitability:- The aggregate profit and loss statement forecasted for 10
project years shows that the net profit of the project will increase from Birr

35
29 million in the first project year to Birr 32 million in the last projection
period.

(ii) Liquidity: - The cash flow projection also shows a total cumulative cash
balance of Birr 32 million for the aggregate investment at the level of the
first project year and reaches Birr 186 million at the end of the last
projection period implying that the project will not face liquidity constraint
to finance its operational costs meeting at the same time its debt obligation.
(iii) Financial Internal Rate of Return:- Before and after tax internal rate
of return computed based on 10 years projection period is 60% and 55%
respectively for the project as whole.
(iv) Sensitivity Analysis

The project's sensitivity to adverse circumstance is viewed from three

different scenarios: by decreasing its sales revenue; increasing its operating
cost and investment cost, all by 10%. The result indicates that IRR after
tax decreases to 39% and 37% with decrease in sales revenue and increase
in operating cost and to 50% with an increase in the cost of fixed asset. It
implies that the project can absorb financial shocks.
(v) Benefit cost Ratio
The calculated Benefit-Cost ratio of the envisage project is found to be 1.33,
meaning that a one-birr investment in the planned project will resulted a
1.33-birr return.
(VI) Break Even Analysis
The calculated breakeven price of the project is found to be Birr 47.
Accordingly, the minimum price that could remain the proposed project at
no loss or no profit condition is estimated to be birr 47 per liter, which is
38% lower than the proposed price of the project.

36
VII. Environmental Analysis
Oilseed milling, on the whole, is a clean industry. Dust may be raised in
storage elevator operations and cottonseed delinting and linter baling rooms,
but this can be contained with proper shrouds and dust control systems. Since
almost 100% of the raw material is utilized as husks, oil, or meal, there is very
little solid waste for disposal. Husks, when burned for fuel, produce smoke
which may affect air quality. Handling of dry meal can generate significant
amounts of dust. Hexane, used in solvent extraction, is highly inflammable and
needs special precautions especially in tropical areas. These problems relate
more to the safety of the worker in the mill than to the plant's environment.
Large quantities of water are used for cooling, but most can be recycled and
what little is discharged is relatively 'clean'. Refining processes use more
chemicals and the hazards are
proportionally greater. In particular, water may become contaminated by
contact with the chemicals. Most of the by-products are further processed and
utilized, posing few problems.

37
 VIII. Financial Assumptions
 Working days per annum 300 days
 Working hour per day 8 hours
 Number of shifts per day 1
 The project will start at a capacity utilization rate of 70% which will be
increased by 10% every year until 95% capacity utilization rate is
achieved.
 Salary and wages are assumed to increase by 5% every year and
Employees benefit is assumed to be 15% of wages and salary expenses.
 Other Overhead costs

1% of the revenue for the 1st per

- Promotional Expense year, 1,074,942 annum
0.75% of the revenue for the 2nd per
  year 921,379 annum
per
  0.5% of the revenue for the rest 691,034 annum
per
- Traveling Expense 5% of wage and salaries 65,220.00 annum
per
- Medical expense 5% of wage and salaries 65,220 annum
-Employee uniform and per
protective equipments 5% of wage and salaries 65,220 annum
- Professional Expense(Legal, 20,0 per
Audit, consultancy etc)     00 annum
40,0 per
- Stationary & P.T.T     00 annum
100,0 per
- Miscellaneous Expense     00 annum
1,365,38
Total     2  

38
  Fuel, Lubricants and oil

Unit
Lt /
Total Fuel Cost
Km or
Requirements per
Hr
Description Quantity KM/Year (Liters) liter

Cargo truck 1 96,000 0.20 19,200 16.65

Mini-Bus 1 51,000 0.17 8,500 16.65

Generator 1 600 25.00 15,000 16.65

Pick up 1 260 45.00 11,700 16.65

Oil and Lubricants are assumed to be 10% of fuel expense

 Insurance

Insurance Total Cost of

Description Rate Insurance
48,173.
Machinery and Equipment 0.8% 23
101,000.
Building & Construction 0.5% 00
23,690.
Vehicles 1.0% 00
Office Furniture and 2,756.
Equipment 0.8% 48

Total   175,619.70

39
  Repair and Maintenance

Repair &
Cost of Rep.
Description Cost Maintainace
& Main
rate
128,4
Machinery and Equipment 6,423,097 2% 62
118,4
Vehicles 2,369,000 5% 50
54,2
Electric line & Generator 2,711,000 2% 20
Office Furniture and 7,35
Equipment 367,530 2% 1
308,48
Total 11,870,627   3

 Depreciation and Amortization

A - Fixed investment Depreciation    

Depreciatio Annual
Description n Rate Value Depreciation
Electric Installation Cost & 2,711,000. 271,100
Generator 10% 00 .00
Building & Construction 5% 20,200,000.00 1,010,000.00
Machineries and Equipment 10% 6,423,097.25 642,309.73
Vehicles 20% 2,369,000.00 473,800.00
367,530. 36,753.
Office Furniture and Equipment 10% 00 00
Sub-Total   32,070,627.25 2,433,962.73
B - Pre-Production cost & Interest
Amo.      
Pre-production Expense 10% 320,707.00 32,070.70
Pre-production Interest 10% 1,592,120.96 159,212.10
Sub - Total   1,912,827.96 191,282.80
Total Depreciation & Amortization 33,983,455.21 2,625,245.52

40
Contents
I. Executive Summary..........................................................................................................................1
II. Background Information.............................................................................................................3
2.1. Vision and objective..............................................................................................................3
2.2. Company profile......................................................................................................................3
III. Opportunities and Risks...............................................................................................................4
3.1. Opportunities.............................................................................................................................4
3.2. Risks.............................................................................................................................................5
IV. SWOT Analysis.................................................................................................................................6
4.1. Strengths.....................................................................................................................................6
4.2. Weaknesses.................................................................................................................................6
4.3. Opportunities.............................................................................................................................6
4.4. Threats.........................................................................................................................................6
V. Market Study.....................................................................................................................................8
5.1. Overview of the Market for Edible Oil in Ethiopia...........................................................8
5.2. Past Supply and Consumption of Edible Oil....................................................................9
5.3. Projected Local Supply and Demand for Edible Oil......................................................12
5.4. Soya bean meal cake for animal feed................................................................................13
5.5. Pricing of Edible oil.................................................................................................................15
VI. Technical Analysis........................................................................................................................16
6.1. Production Process.................................................................................................................16
6.2. Marketing Aspect....................................................................................................................26
6.3. Other Factors...........................................................................................................................27
6.4. Raw and Auxiliary Material................................................................................................28
6.5. Utilities.......................................................................................................................................31
6.6. Organizational Structure, Manpower and Training Requirement............................31
C. Training Requirement...................................................................................................................33
VII. Financial Study............................................................................................................................34
7.1. Investment Outlays and Source.........................................................................................34
7.2. Financial Results:-..................................................................................................................34
VII. Environmental Analysis.............................................................................................................36
VIII. Financial Assumptions.............................................................................................................37

41
 Addis Ababa

July, 2018

42