Establishing a Cassava Processing Plant Executive Summary
Case / Program and Project Management
Establishing a Cassava Processing Plant Executive Summary
steve ochonma , Management Consultant, Nigeria
The Feasibility and Viability of Establishing a Cassava Processing Plant at Obehie, Abia state, Nigeria.
The Feasibility and Viability of Establishing a Cassava Processing Plant At Obehie, Abia state, Nigeria.
Sucoch flour and pellets, will be produced at Rockbrooks Global Limited Cassava Processing factory, at Obehie in Abia, Nigeria, for both local market and exports. Unlike the traditional processing methods that results in substandard products; therefore pose major challenges to utilization and marketing of cassava, especially for export, this plant will utilize modern technology to produce high quality cassava flour (HQCF) and chips as substitutes for imported wheat flour, and as raw materials to other local companies. There is high demand for High quality cassava pellets globally, so this plant will supply to the international market also.
The study is aimed at investigating into the feasibility and viability of establishing cassava flour and chips processing plant in Obehie, Abia state, Nigeria. It is generally believed that developing countries like Nigeria must invest more in their commodity sectors if they are to secure the resources needed to transform their economies. Many Scholars recognizes the view that economic development is possible in Africa, if increased commodity exports and earnings are engineered by increased manufacturing and industrialization. Again with dwindling fortune of Nigeria based on near Mono-product export, there is an urgent need to diversify the Nigerian economy and develop her non-oil sectors.
A radical paradigm shift in both mindset and action is needed.. In line with the recent Federal government policy on cassava therefore, a more robust and sustainable approach to cassava processing unlike the traditional methods that results in substandard products; therefore pose major challenges to utilization and marketing of cassava, especially for export is needed. Recently, Research institutions like FAO, FIIRO, IITA, Ministry of Agriculture, NGOs and other development agencies have given priority to agro-processing and value addition to cassava at small-scale and medium scale.
New processing technologies for transforming cassava into intermediate shelf staple industrial raw materials such as high quality cassava flour, chips and starch were introduced at project levels by various Federal governments MDA’s. Similarly, cassava flour, chips and high quality cassava flour (HQCF) are increasingly being accepted as substitutes for imported raw materials in the local industries. Although there are several expressions of interests for investment by the private sector, their involvement in small to medium scale processing and value addition largely depended on the magnitude of institutional support or donor funding of processing projects. Nevertheless, there is still paucity of private sector investment in large scale processing plants that are specifically designed for the production of cassava flour and chips. In line with the Federal government transformation agenda in Agriculture, processing of Agricultural products have become an imperative. This paper is therefore, specifically aimed at determining whether it is financially, economically, technologically and legally feasible and viable to establish a cassava flour and chips processing plant in Obehie, Abia state, Nigeria.
The demand for cassava chips and pellets is worldwide. The first large scale commercial user of cassava chips as a livestock feed all the farmers of the United Kingdom; the Federal Republic of Germany (FRG), Netherlands and France. The products are also widely demanded in Taiwan, Asia and USA. Nigeria is currently making judicious use of this immense opportunity. For instance, the country has secured a total of 2.2 million MT of dried cassava chips exports to China. This amount is 200,000MT greater than initial 2015 projected plan. Exports of dried cassava chips to China, for the first 1 million MT, started in July 2012. This will earn Nigeria $136 Million annually and represents the first time Nigeria will achieve commercial scale exports of dried cassava chips..
Cassava is presently in high global demand in starch making, brewing, textile, food adhesives, bakeries, feed mills, animal feed, paper processing, biscuits and other snacks, etc.
The competitive advantage of the proposed plant over competitors is twofold:
1.Significant amount of the nation’s cassava outputs are generated in the Southern part of the Nigeria, where Abia State is located. Preliminary studies show that, the cassava produces aren’t adequately processed, therefore there will be raw material adequacy and promptness of supply.
2. Obehie is also located in a strategic position that make it easier for the transportation as well as efficient distribution of the cassava flour and pellets that will be eventually produced. First Obehie stranded the strategic Aba - Port Harcourt expressway. Secondly, the city is very close to two airports namely, Sam Mbakwe Airport, Owerri and Port Harcourt International Airport. Port Harcourt International Airport, which is the closest, is located just 35.5 km west of the city center of Obehie. Also, the city is very close to the Seaport at Onne, in Rivers States. Finally, Obehie is connected to the National Electricity Grid. In fact, the city is a host to 132 KV Sub-station. The Alaoji power plant project is also located near the town. So in summary, the proposed enterprise will have access to reliable electricity. There is also a good network of roads connecting the raw material producing area and to the marketing center.
The international prices of chips & pellets fluctuate between $1,200 and $1,300 per metric tonne. Locally, it is sold for N120, 000 per tonne mostly by cassava flour producing plants, who in turn sell to Flour Millers in Nigeria.
The projected cash flow analysis shows net cash inflow of ₦17,100,000; ₦23,508,000;₦30,908,700, ₦37,138,140 and ₦43,639,568 respectively over the 5-year period.
For a start, the managerial structure of the processing plant is going to be simple. A total of 33 workers will be required for initial commencement of operations. The cassava flour and chips processing plant will be run as a Limited liability company, and therefore will have a board of directors and a Chairman, but those will be on non-executive capacity. The plant will be managed by a General Manager and assisted by a Deputy General Manager, who will have considerable experience in food processing. Procurement, marketing and Accounts officers. There will also be machine operators, drivers for logistics, security men and unskilled labourers.
1. The total cost required for setting up the processing plant is put at ₦ 50, 000, 000.
2. The grand total of the operating cost per month is put at ₦ 25, 174, 158. This expense is spent mainly on the raw materials, salary and utilities.
3. As we can see from table 2.3, the total monthly cost of raw materials is ₦ 19, 000, 000. This is mainly spent on acquiring High Quality fresh Cassava and Chips.
4. The monthly expenses spent on Salaries/Wages are estimated to be ₦ 3, 562, 500.
5. The monthly expenses on utilities amount to about ₦ 480, 000.
6. The projected cash flow analysis shows net cash inflow of ₦17,100,000; ₦23,508,000;₦30,908,700, ₦37,138,140 and ₦43,639,568 respectively over the 5-year period.
The Return on Investment averaged at 36.8% over the 5-year period.
The Net Present Value discounted at 20% and 45% for the 5-year period are positive at ₦9,126,511 and negative - ₦26,690,313 respectively. So the recommended cost of fund is 20%.
The Internal rate of return, that is, rate at zero NPV = 26.37%
The Pay back period is calculated at 3.1 years.
The accounting rate of return is 73.59%, and
The profitability index is 112.1% at 20% Discounted Factor.
The business requires an amount of ₦ 75, 174, 168, for both Asserts and working capital.
Owners’/ Equity contribution to the Business is put at ₦ 46,174,168
Loan of ₦29,000,000 to be used as working capital to buy raw materials to process High Quality Cassava Flour in the urban area, is needed.
(i) The loan shall be repaid in 3 years and shall attract an interest of 20% per annul.
(ii) Moratorium shall be six (6) months.
The result show that the project met all the set out objectives and was found to be socially desirable, economically worthwhile, technically and legally feasible, and highly profitable. It is therefore recommended that this project be embarked upon as a worthwhile business venture, because it will be feasible and viable, especially, under the proposed management structure.
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