92.

PROFILE ON PROCESSING OF POULTRY

MEAT
 92-2

TABLE OF CONTENTS

PAGE

I. SUMMARY 92-3

II. PRODUCT DESCRIPTION & APPLICATION 92-3

III. MARKET STUDY AND PLANT CAPACITY 92-3

A. MARKET STUDY 92-3
B. PLANT CAPACITY & PRODUCTION PROGRAMME 92-7

IV. MATERIALS AND INPUTS 92-7

A. RAW & AUXILIARY MATERIALS 92-7
B. UTILITIES 92-8

V. TECHNOLOGY & ENGINEERING 92-8

A. TECHNOLOGY 92-8
B. ENGINEERING 92-10

VI. MANPOWER & TRAINING REQUIREMENT 92-12

A. MANPOWER REQUIREMENT 92-12
B. TRAINING REQUIREMENT 92-14

VII. FINANCIAL ANALYSIS 92-14

A. TOTAL INITIAL INVESTMENT COST 92-14
B. PRODUCTION COST 92-15
C. FINANCIAL EVALUATION 92-16
D. ECONOMIC BENEFITS 92-17
 92-3
I. SUMMARY

This profile envisages the establishment of a plant for the processing of poultry meat
with a capacity of 875 tonnes per annum.

The present demand for the proposed product is estimated at 794.6 tonnes per annum. The
demand is expected to reach at 1,904.31 tonnes by the year 2022.

The plant will create employment opportunities for 43 persons.

The total investment requirement is estimated at Birr 16.78 million, out of which Birr
9.19 million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 23% and a net present
value (NPV) of Birr 10.03 million discounted at 8.5%.

II. PRODUCT DESCRIPTION AND APPLICATION

In general poultry belong to domesticated birds that serve as a source of eggs or meat and that
include turkeys, ducks, geese, guinea fowls, pigeons and others. The source of poultry meat in
the country is from the small artesian poultry farms. The product has a promising market
potential both at local and export level. The project requires capital investment of medium scale
and can create medium employment opportunity.

III. MARKET STUDY AND PLANT CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand

The country's requirement for poultry meat is essentially met through domestic production. In
general poultry refers to domesticated birds that serve as a source of eggs or meat, including
chicken, turkeys, ducks, geese, guinea fowls, pigeons and others. However, chicken meat
 92-4
accounts for the overwhelming proportion of the poultry meat consumed in Ethiopia.
Accordingly, the consumption of chicken meat is considered in estimating the demand for
poultry meat in the country. Since data on domestic production of chicken meat is not readily
available, the Revised Report on the 1995/96 Household Income, Consumption and
Expenditure Survey is analyzed in estimating the demand for the product. Table 3.1 depicts the
average amount of chicken meat consumed by different expenditure groups in urban and rural
areas according to the survey finding.

Table 3.1
DOMESTIC CONSUMPTION OF CHICKEN MEAT

Number of Average Total

Income Individuals Annual Annual
Group in the Consumption Consumption
Group (gram) (tonnes)
< 600 17253 - -
600 - 999 125904 7 1
1000-1399 432547 35 15
1400-1999 580104 68 39
2000-2599 4217465 159 671
2600-3399 6498555 172 1118
3400-4199 7844772 196 1538
4200-5399 10885614 201 2188
5400-6599 8007978 269 2154
6600-8999 8817091 299 2636
9000-12599 5114961 367 1877
12600-16199 1765555 601 1061
16200-19999 673706 713 480
> 20000 972722 752 731
Total 55954227 14509.96
Source: CSA, Revised Report on the 1995/96 Household
Income Consumption and Expenditure Survey, 2001.
 92-5

As can be seen from Table 3.1, the total consumption requirement of households for chicken
meat is 14509.96 tonnes per annum. Given a total population of 55,954,227 at the time the
survey was conducted, the per capita consumption of chicken meat is computed to be 0.26 kg.
Assuming the regional market constitutes the viable market for the product, the present demand
for chicken meat is estimated at 3,973 tonnes using the total population of the region for 2007.
Processed poultry meat has a high domestic demand by hotels, restaurants, super markets,
various institutions with food catering services, and urban households. Therefore, the demand
for processed poultry meat is conservatively estimated at 25% of the total demand for chicken
meat. The present demand for processed poultry meat in the regional market is thus estimated
at 794.6 tonnes.

2. Projected Demand

Given a high domestic demand for processed poultry meat by hotels, restaurants, super
markets, various institutions with food catering services, and urban households, a 6% rate of
growth is used in projecting the demand for the product. Table 3.2 depicts the projected
demand for the product.
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Table 3.2
PROJECTED DEMAND FOR PROCESSED POULTRY
MEAT (TONNES)

Year Projected
Demand
2007 794.60
2008 842.28
2009 892.81
2010 946.38
2011 1003.16
2012 1063.35
2013 1127.16
2014 1194.78
2015 1266.47
2016 1342.46
2017 1423.01
2018 1508.39
2019 1598.89
2020 1694.82
2021 1796.51
2022 1904.31

3. Pricing and Distribution

Currently the retail price of processed chicken meat is Birr 30 per kg. Allowing margin for
wholesale and retail margin, the factory gate price for the product of the envisaged plant is
estimated at Birr 20 per kg.

The envisaged plant can distribute its product through the existing wholesale and retail
network, which includes department stores, merchandise shops and supermarkets.
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B. PLANT CAPACITY AND PRODUCTION PROGRAMME

1. Plant Capacity

Based on the market study and minimum economies of scale, the proposed annual capacity of
the poultry meat processing plant will be 875 tones. The production capacity is determined
based on tow shifts of 8 hours each and 300 days per year operation of the plant.

2. Production Programme

The plant will operate at 70% and 85% of its rated capacity in the first and second year. Full
production capacity will be achieved in the third year and then after.

IV. MATERIALS AND INPUTS

A. RAW AND AUXILIARY MATERIALS

The principal raw and auxiliary materials required are chicken, and polyethylene bags.
Chickens required by the plant can be acquired locally. The annual requirement for raw and
auxiliary materials and the corresponding cost is estimated at 100% capacity utilization are
given in Table 4.1. The total annual cost of raw material is estimated at Birr 6,907,000.

Table 4.1
ANNUAL REQUIREMENT AND COST ESTIMATES OF RAW AND AUXILIARY
MATERIALS

Sr. Description Unit of Qty. Unit Cost '000

No. Measure price Birr
1 Chickens No. 58,000 100 5800

2 Polyethylene bags (kg) Kg 25,000 35 875

3 Water proof card Pcs 5,800 40 232
board boxes
Grand Total - - 6,907
 92-8
B. UTILITIES

The major utilities required are: fuel oil to generate steam, water for feeding chicks and
processing, electric power and refrigerant. The total yearly consumption of utilities at 100%
capacity utilization rate and their estimated costs are given in Table 4.2. The total annual cost
of utilities is estimated at Birr 617,000.
Table 4.2
ANNUAL UTILITIES REQUIREMENT AND ESTIMATED COST

Sr. Description Unit of Qty. Cost Birr'000

No. Measurement Unit Cost Total Cost
1 Fuel oil Lt. 80,000 5.5 440
2 Water m3 13,800 5.5 76
3 Electric power KWh 185,000 0.4736 88
4 Refrigerant Kg 46.00 300 14
Grand Total - - - 617

V. TECHNOLOGY AND ENGINEERING

A. TECHNOLOGY

1. Production Process

The processing of poultry-meat preparation generally follows the following stages:

Hanging: - The Chickens are manually taken from the wooden or plastic transportation crates
and hung upside down by their feet on a transporting chain.

Bleeding: - The Chickens, hanging upside down, are bled by the jugular vein.

Feather removal: - The Chickens pass through a tunnel where they are sprayed with hot water
(at a temperature of 60-65ºc) in order to facilitate feather removal. The
 92-9
birds then pass through a series of rotating ‘fingers’ that beat them,
removing all feathers.

Decapitation: - A special hook removes the heads of the Chickens.

Evisceration: - By opening the anus, the lungs are aspirated by a vacuum device and special
forks remove the entrails. This operation is carried out under shower water.

Washing: - After evisceration, the Chickens are internally and externally washed with a
shower of clean water.

Cooling: - The eviscerated, washed Chickens are then cooled in a continuous counter current
cold water bath. The body temperature of the Chickens must drop to 8-10ºc.

Feet cutting: - Feet are cut in a continuous process after the broilers have been hung on a
continuously moving chain by a double disc knife device.

Neck cutting: - An automatic knife cuts Necks. Afterwards, the birds are ready for weighing.

Classifying: - The cooled broilers are classified by weight on automatic weighing scales that
separate the Chickens into several lots with weight differences of up to 50
gram.

Packing: - Broilers in the same weight lot are placed on a sanitary conveyor belt and manually
stuffed with bags containing the stomach, liver and heart. On the same belt they are
then manually packed into pouches and tightly closed by wire clips. The packed
broilers are placed in groups of 10 in water proof card board boxes, which are
sealed manually and marked with a label containing the final net weight, the
production date, lot identification, and other necessary information.

Freezing: - Boxes are continuously frozen on a conveyor belt, which carries them through a
cold room at a temperature of -35ºc with a very intensive circulation of air. The
final temperature of the Chickens must be around -15ºc.
 92-10

Cold storage: - After the boxes have been frozen in the freezing tunnel, they are stored on
pallets inside the freezing rooms at a temperature of -20ºc. The shelf life of
frozen broilers produced with this technology is 12-18 months, provided that
the storage temperature is maintained at -20ºc.

2. Source of Technology

Machinery and equipment for poultry meat processing plant can be acquired from Italy,
Bulgaria, Brazil, etc. through contacts with the commercial attaches of respective embassies to
Ethiopia. The following company can be considered as one of the possible source of
technology:

Dah Chong Hong (Japan) Ltd.

(K.K.Taisha) Bouekekou (10). 18-2, Roppongi 5- Chome, Minato - Ku, 106-0032
Tel : 03-3582-0706
Fax: 03-3586-8393 03-3582-7148.

B. ENGINEERING

1. Machinery and Equipment

The list of required plant machinery and equipment is given in Table 5.1. The cost of
machinery and equipment is estimated at Birr 9.19 million, of which Birr 7.81 millions required
in foreign currency.
 92-11
Table 5.1
LIST OF MACHINERY AND EQUIPMENT REQUIRED

Sr. Description Qty.

No. (No.)
1. Drinking system Set
2. Feeding system Set
3. Brooder Set
4. Manure handling system Set
5. Boiler 1
6. Compressor 2
7. Water treatment set 1
8. Hanging chains 1
9. Conveyor 2
10. Feather removing equipment 2
11. Vacuum lung aspirator 1
12. Washing showers 4
13. Cooling water tank 2
14. Automatic weighing scale 1
15. Freezing tunnel 1
16. Freezing room 1
17. Autoclave 1
18. Digester 1
19. Silo 1
20. Edible entrails line 1

2. Land, Building and Civil Works

The total area of land required for the plant is about 5000 square meters. The lease cost of
land, at a rate of Birr 0.10 per m2 for 80 years, is estimated at Birr 40,000. The total built-up
area will be 2,000 square meters and the estimated cost of building, at the rate of 2,500 Birr per
 92-12
m2, will amount to Birr 5.0 million. The total cost of land, building and civil works is estimated
Birr 5,040,000.

3. Proposed Location

Arkb town at Gumer woreda is proposed as a reasonable location for the envisaged plant.

VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The total manpower required is 43 persons. Details of manpower and annual estimated labour
cost including the fringe benefits are given in Table 6.1. The total annual manpower cost is
estimated at Birr 335, 520.
 92-13
Table 6.1
MANPOWER REQUIREMENT AND ESTIMATED LABOUR COST

Sr. Description No. of Salary, Birr

No. Persons Monthly Annual
1. Manager 1 2,500 30,000
2. Secretary 1 700 8,400
3. Production supervisor 1 1,200 14,400
4 Maintenance Engineer 1 1,200 14,400
5. Chemist 1 900 10,800
6. Operator 4 2,000 24,000
7. Laborer 15 4,500 54,000
8. Electrician 1 600 7,200
9. Personnel 1 900 10,800
10. Mechanic 1 600 7,200
11. Accountant 1 1,200 14,400
12. Purchaser 1 900 10,800
13. Sales person 1 900 10,800
14. Veterinary technician 1 700 8,400
15. Store keeper 2 1,000 12,000
16. Cleaner 2 400 4,800
17. Cashier 1 500 6,000
18. Driver 2 900 10,800
19. Guard 4 1,200 14,400
20. Store-keeper 1 500 6,000
Total 43 23,300 279,600
Employees' benefit (20% of basic salary) - 55,920
Grand Total - 335,520
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B. TRAINING REQUIREMENT

The quality controller, production supervisor, maintenance engineer and operators needs one
month on-the-job training on the operation, quality of product, maintenance of machinery by
the expert of machinery and equipment supplier during erection and commissioning period.

The veterinary technician and laborers also needs job training on sanitation of the room, and
other necessary areas for about a month. The total training cost is estimated at Birr 50,000.

VII. FINANCIAL ANALYSIS

The financial analysis of the poultry meat 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 5 years
Bank interest 8%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 10 days
Work in progress 1 days
Finished products 10 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 16.78
million, of which 52 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 40.0
2 Building and Civil Work 5,000.0
3 Plant Machinery and Equipment 9,190.0
4 Office Furniture and Equipment 125.0
5 Vehicle 200.0
6 Pre-production Expenditure* 1,083.3
7 Working Capital 1,147.6
Total Investment cost 16,785.9
Foreign Share 52

* N.B Pre-production expenditure includes interest during construction ( Birr 933.30 thousand ) training (Birr
50 thousand ) and Birr 100 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 10.20 million (see
Table 7.2). The material and utility cost accounts for 73.73 per cent, while repair and
maintenance take 2.74 per cent of the production cost.
 92-16
Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs 6,907.00 67.70
Utilities 617 6.05
Maintenance and repair 280 2.74
Labour direct 201.31 1.97
Factory overheads 67.1 0.66
Administration Costs 134.21 1.32
Total Operating Costs 8,206.62 80.44
Depreciation 1251.5 12.27
Cost of Finance 744.58 7.30
Total Production Cost 10,202.70 100

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.
 92-17

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 = 35 %
Sales – Variable Cost

3. Pay Back Period

The investment cost and income statement projection are used to project the pay-back period.
The project’s initial investment will be fully recovered within 4 years.

4. Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 23% and the net present
value at 8.5% discount rate is Birr 10.03 million.

D. ECONOMIC BENEFITS

The project can create employment for 43 persons. In addition to supply of the domestic needs,
the project will generate Birr 7.02 million in terms of tax revenue. The establishment of such
factory will have a foreign exchange saving effect to the country by substituting the current
imports.