Milk and Milk Products Processing Plant in Molo Dstrict, Kenya
this idea is to benefit dairy farmers in kenya. the idea involves buying milk from the local farmers at a good price, the adding value to the milk to have different product which include pasturized wh
NGETIOS’ DAIRY PROCESSING PLANT
P.O BOX 12060,
NAKURU – 20100
E-mail- [email protected]
JANE CHEPTOO SANG
BUSINESS PLAN PRESENTED TO:
AFRICA RURAL CONNECT
ON – 15TH NOVEMBER 2009
TABLE OF CONTENTS
Executive summary ……………………………………………………………………………. (i)
Statement of purpose ……………………………………………………………………….. 1
Business description ………………………………………………………………………….. 2
Marketing plan ………………………………………………………………………………….. 8
Advertisement and promotion strategy ……………………………………………. 10
Organization and management …………………………………………………………. 11
-organization and management chart ………………………………………………… 11
-Recruitment and training ………………………………………………………………….. 12
Operational/production plan …………………………………………………………….. 14
-product design and development …………………………………………………….. 15
Risk reduction plan ……………………………………………………………………………. 17
Exit and harvest plan ………………………………………………………………………… 18
Financial plan ……………………………………………………………………………………. 19
Ngetios Dairy plant is to be situated in Sachangwan Location of Molo Division, Molo District.
It targets to process initially 500 litres of milk per day and to increase to 10000 litres per day within the first two years. The final Products are Pasteurized milk, Mala and sweetened (yoghurt milk) milk. Good quality milk will be sourced from individual farmers and also from farmer groups and also own milk at ksh.30 per litre.
Renewable source of energy and water will be used for daily operations. Biogas will be used for heating, cooling and all other process required and high dram system of water supply will be used to supply water from Molo River at ksh.900000. The water will flow by use of gravity and will require minimum maintenance cost. Surplus Biogas and water will be distributed to the neighbors thus increasing their productivity and conservation of the environment.
Initial capital required will be ksh 14050000 while the projected profit by the end of 2011 will be 138354400.
The business will benefit 20 people directly and 500 people indirectly. The 20 people will be employed directly by the business as staff of the organization. The other 500 people will be employed as staff of the respective dairy farms they will be working in. others will get employed in shops that will open up to sell the products in different areas. Also others will get employment in other complementary business for example animal feeds producing companies, that will see improved market due to increase in demand of animal feeds for the dairy animals.
The business will be working in conjunction with the Ministry of Livestock extension Officers. The extension officers will ensure that the farmers get the best training in breeding of the animals, advised ways of feeding the animals, ways of milking the animals, handling of milk products, ways of
CHAPTER 1: INTRODUCTION
STATEMENT OF PURPOSE
The purpose of writing this business plan is that it is important to have a blue print of the plans you intend to achieve. A business plan actually gives the entrepreneur the direction to follow so as to achieve the initial goals of the business ensuring profitability to the business. This business plan can also be used to get financial support from financial institutions that usually require a good business plan so as to have a good knowledge of the business they want to invest in. The purpose of the business plan is to outline the activities taken by the business, product marketing, capital requirements, capital sourcing and personnel requirements and sourcing for the business.
By writing this business plan I will be having a written down step-by-step strategic plan for the smooth running of the business. Also I intend to apply for a loan from a financial institution to start up the business because of the high cost of machines and materials needed for the business.
Molo District is a milk producing area, the business will ensure that the milk produced by the farmers in the area get a ready market and the milk bought at the right price, to ensure profitability of both the business and the farmers in the area.
The business name to be used will be Ngetio’s dairy processing plant, which is a proposed small scale milk processing plant situated at Kabianga sub-location, Sachangwan location of Molo Division, Molo District. Its address is P.O BOX 12060 NAKURU-20100. It situated along Jolly Farm- Matumaini Road. The processing plant will be located in the family farm. Selling points will be constructed in Jolly farm shopping center and Salgaa town. After considerable growth of the business the partners intend to launch a web-site to aid the company reach international market, as the business plans to go international in the future.
The business is a partnership formed under provisions of partnership Act CAP 29 of Kenyan law. The partners in the business brought in different professional skills and capital to be able to start the business. The professional skills contributed by the partners are the most valuable resource that the business has.
The main products to be produced are Mala, Yoghurt, pasteurized milk and traditionally cultured milk “mursik”. Mala milk will be produced by buying good quality milk from the farmers, then pasteurizing the milk, adding inoculants into the milk and then cooling overnight. The quality of inoculants used determines the taste of the mala to be produced.
The other product to be produced will be the pasteurized fresh whole milk; this will be produced by pasteurizing the fresh milk with cream for 5 hours then packaging the milk into different package sizes and finally cooling the milk in the coolants available.
The production of yoghurt milk will involve the pasteurizing of the fresh milk, then adding inoculants, different flavors and different food-colors, then cooling to ferment then packing the milk into the different package sizes.
The other product to be produced in the business will be the traditionally cultured milk “mursik”. This will involve the pasteurizing of the fresh milk, then adding of inoculants to the milk and later adding special traditional materials to the milk for color and flavor.
The industry will operate in the agricultural sector under the livestock sub-sector (dairy production).
1.-The main aim of the business is to value add the milk produced in the Division and its environs and create employment for up to 30 people directly and up to 500 people indirectly through the process of milk up to 10000 litres per day using biogas as the main source of energy for both processing and cooling. The choice of biogas as main source of energy is mainly due to high cost of electricity hence need for a cheaper alternative.
The main aim for the choice of this business opportunity is that the area is a milk producing zone. The milk produced is sold through informal channels at very low prices earning low income to farmers.
2.-To improve the livelihood of the milk producers through value addition thus increasing price of the brought from the farmers.
3.-To create employment for the youth from the area directly or indirectly;
Directly- By being employed in the plant
Indirectly- Buying and selling processed milk and in the dairy farms
4.-To Increase the availability of milk for consumption in the project area by the non- producers.
5.-Use of biogas from the dairy unit as the sole source of energy for processing and cooling , and selling some surplus energy to our neighbors thus help to conserve the environment.
SHORT TERM GOALS
-To economically empower the milk producers and youth in the project area through provision of better prices and sustainable market for their milk through value addition.
-Maintenance of high quality products and customer care to sustain customers and bring in new customers.
-Expand distribution to reach areas which are milk deficits.
-Pay close attention to packaging and distribution so that end products are able to sell without much advertising.
-Continuous expansion to provide further employment opportunities so as to improve living standards of the people within the project area and its environs.
ENTRY AND GROWTH
-There will be an initial survey to identify potential suppliers of raw milk and communicate with them concerning the quantities they are willing to deliver and the prices at which they are willing to sell their milk.
-The business will then buy and process the milk from both small and medium scale farmers within the project area. It is estimated that 500 litres of milk will be purchased at the initial stages and then increase to 10000 litres per day during stable growth within the first two years of operations.
In order to obtain optimum 10000 litres per day, the following will be done.
1. Purchase milk at farm gate at a price acceptable by both the buyer and the seller.
2. Pay the milk producers at an agreed date.
3. Train the milk producers on intensive and clean milk production.
4. Train the youth to start Mala and Yoghurt milk bar in their respective centers especially Salgaa and Total markets centers.
5. Train milk producers on feed conservation to sustain the same level of production both during rainy season and dry season.
The business will start as a small operator in the industry. But with time we expect that the business will grow to be an international distributor of milk and other milk products. This will be achieved after the business has fully satisfied the local market.
The potential customers are our neighboring kiosk and shop owners in the nearby centers and towns, supermarkets in Sachangwan, Salgaa, Rongai, Total, Molo, Nakuru, Marigat, Kabarnet and Kericho.
-They are well established such that they are able to withstand adverse conditions as they are able to obtain finances easily from financial institutions as they are considered less risky when it comes to repayment of the borrowed funds.
-They cover wider market due to the duration (number of years) they have been in the market.
-Product differentiation-The products are packaged differently.
-They have enough resources required in running the business e.g. Personnel who have attained required expertise in marketing and processing.
-They charge low prices at the farm gate and high prices of finished products e.g. ksh. 18- 26 per litre at farm gate, sh.40 for fresh pasteurized milk, 46 for Mala and 70 for yoghurt per 500ml at the outlets.
-Delayed payments to the producers.
-High milk rejection during the peak periods.
-Lack of necessary incentives given to the producers to motivate them to produce more e.g. training on milk production.
How to capitalize on the weaknesses
1.-Reduce current consumer prices from current prices by 10- 20%
2.-Encourage producers to form marketing groups which will help to establish cooling plants to collect all the milk produced and cool when still in good quality.
3.-Train the producers to maintain high level of hygiene in production and handling of milk at the farm level and cooling plant level to avoid contamination and adulteration of the milk.
4.-Establish a revolving fund to help the producers meet their pressing needs during the course of the month at a minimum interest rate.
It is expected that the market share will initially be low but will increase to a range of 20-30% depending on the market. It is expected that the product will capture a bigger share of the market share due to lower pricing.
The lower pricing will be sustained through use of renewable source of energy and water as compared to use of electricity and water.
The management will apply the minimum profit per unit and maximum volume sales strategy. I.e. they will ensure that they get a minimum profit per unit and sale more units per day.
While pricing the following will be considered:
-Cost of raw milk per litre
-Cost of transport per litre
-Cost of cooling per litre
-Cost of processing per litre
-Cost of packaging 250ml, 500ml, and one litre.
-Cost of transport of end products
-Expenditure on personnel working in the plant, collecting and transporting the milk
(Both raw and processed)
-Initial capital on fixed assets spread for 5 years (useful life of 5 years).
-Cost of various licenses per year.
Depreciation on cost of fixed assets
e.g. - prices of milk per litre: sh.30
-Cost of transport sh.3
-Cost of cooling per litre sh.2
-Cost of process sh.5
-Cost of packaging per litre sh.5
-End products sh.3
-Cost of personnel per litre sh.7
-Initial capital cost per litre sh. Sh.4.50
-Other costs (selling and distribution) sh.3
Total cost per litre 62.50
-Average profit /litre sh.20
-Average Selling price per litre sh. 80.50
ADVERTISING AND PROMOTION STRATEGY
1.-Initial strategy – physical presentation of the products to the potential products to the potential customers with free samples.
2. -Long term Strategy-Maintain high quality products and customer care so as to sustain customers and to bring in new customers.
-Expand distribution to reach areas where there are milk deficits.
-Pay close attention to packaging and distribution and the end product should be able to sell without much advertising.
3. -Distribution Strategy- Depot distributors’ strategy will be used.
-Depots equipment with deep freezers will be opened at main consumption areas to enable the retailers access milk at a minimum cost.
-Reduce cost of transportation by transporting in bulk twice a week.
4.-The sales tactics that will be used is through sales people and multi-level marketing.
5.-Other marketing strategies:
i. Painting shop walls on almost all target markets with the business logo and colour.
ii. Buying t-shirt for the staff and other support teams in the market.
iii. Designing car-wheel covers and key chain holders to be given out as gifts to customers and also retailers.
iv. Putting advertisement board on road sides near shopping centers and near the business premises.
ORGANISATION AND MANAGEMENT
ORGANIZATION AND MANAGEMENT CHART
The management team will comprise of four managers;
-Processing and quality control Manager
-Sales and marketing Manager
-Accounting and procurement manager
1. General Manager -Bsc. In Dairy Technology or Food Science Technology
2. Processing and Quality Control Manager -Diploma in Dairy Technology
3. Sales and Marketing Manager -Diploma in sales and marketing
4. Accountant and procurement Manager -C.P.A part 11 or Diploma in Business Administration
Other personnel requirements No. of staff
-Quality control officer 1
-Dairy Extension officer 1
-Accounts Clerk 1
-Plant Operators 3
-General Staff 1
Total personnel 13+4 17
RECRUITMENT AND TRAINING
Recruitment will be done competitively through advertisement and interviewing the potential candidates. The recruited staff should have the minimum training requirement for the job. However, regular updating will be done through sending of staff to relevant short courses offered by various training institutions e.g. Dairy Training institute in Naivasha, Baraka Agricultural College in Molo and Egerton University Njoro and Town Campus and also Kenya Institute of Management (KIM)
(a)-Salary and Wages will range from 4000 to 20000 per month based on qualification.
(b)-Fringe benefits- House allowance will range from ksh.600-3000
- NSSF as per NSSF regulations
-Medical allowance subject to a maximum of ksh.10000 per year
-NHIF – 320 per month per officer
-Technical support on the construction of the biogas plant for power supply and hydrum system of water supply.
-Environmental Impact Assessment to determine the sitting of the plant.
-Approval by Dairy Board and Town Council of Molo.
-Training institutions for updating the workers on various skills required to enhance their efficiency in production and also to provide various field training to Dairy farmers.
LICENSES AND PERMITS
The following licenses will be required for processing and transportation;
1. Certificate of registration with the Kenya Dairy Board -2500 per year
2. Certificate from Transport Licensing Board ksh-1000
3. Public Health Certificate from ministry of Public Health. Ksh1000
4. Medical Certificates for the workers from Government Medical Officer of Health. Ksh.1200
5. Driving license Certificate from KRA for the drivers. Ksh 600 per year
6. Road Licenses- ksh.2000 per year
7. Motor Vehicle insurance certificate –Comprehensive at ksh.70000 per year
8. KEBS Certificate from Kenya Bureau of Standards kosh.25000 per year
9. Environmental impact assessment Certificate from (NEMA)-ksh.20000-50000
10. Approval certificate from Town Council of Molo.
The business will be operated through the following ways:
1. Construction of business premises which has-
(a) Milk receiving area and testing
(b) Cooling and holding tanks
(c) Heating and pasteurizing tanks
(d) Cooling and inoculation tanks
(e) Cooling and packaging area
(f) Sales office and product loading area
(g) Administration block
2. Purchasing and installation of the coolers pasteurizers, sealing machines and label bottles.
3. Purchasing of pick-ups for collection of the milk and for delivery of the products to consumers.
-For the first six months it is expected that the plant will purchase 500-1000 litres per day with an average of 750 litres per day within six months period.
-The following materials will be required;
(a)-Milk -750 litres x ksh.30 per litre =22500 litres
-per month =675000 litres
(b)-Sugar 22.5 kg per day =sh.129375 per month
-Per 6month =sh.776250
(c)-Reagents -Alcohol 70% =2 litres per month
-Lactometer Quantity. =2
-Alcohol Gun Quantity. =2
-Resazurin tablet =100 tablets per month
-Gerber Sulphuric Acid =2 litres
-Packaging bottles -50000 bottles
-Transporting Crates -5000 ksh.400000
-Aluminum Milk cans -20 and 50 litre cans per month
-Food Colour - 2 litres per month
-Inoculants - 4 kg per Month
-Amyl alcohol -2 litres
Total cost of materials ksh. Ksh.1154250 per month
1.-Raw milk- Individual and farmer groups in Molo, Njoro, Keringet, Koibatek and Kipkelion Districts
2.-Other products – To be purchased from K.F.A and reputable supermarkets.
-The material required is 300000 litres per month costing ksh.9000000 (per 10000 litres milk a day)
PRODUCTION DESIGN AND DEVELOPMENT
The management intends to design and develop by-
-Purchasing good quality raw milk from the producers
-Pasteurizing and packaging for fresh whole milk.
-Pasteurizing, inoculating and cooling overnight for mala.
-Pasteurizing, cooling inoculating to continue to ferment cool then pack.
What will distinguish Ngetio’s products from other products are the quality and the packaging of the products.
It will cost ksh.5 to design the packaging materials and estimated cost of product will ksh.62.50 per litre for the product.
-The partnership will be registered under partnership Act cap 29 of the laws of Kenya.
-The trade mark will be the name of the registered organization and the logo of the organization printed on the packaging materials.
-Get the Kenya Bureau of Standards (KEBS) label
-Get the processing and transporting licenses from Kenya Dairy Board.
-Obtain business licenses from the municipal council.
-Certificate from the National Transport Licensing Board
-Public health certificates
-Driving license for the drivers and road licenses and motor vehicle insurance
-Medical examination certificate for the workers
RISK REDUCTION STRATEGIES
In order to reduce the risk, purchasing of good quality milk is employed. This is to ensure that loses due to poor quality milk is reduced to the minimum.
-Capacity building of the workers is done regularly to keep them appraised on the changes in the market and also on cheaper and efficient production techniques.
-Carry out regular auditing of the financial statements to ensure that there is transparency and accountability and this will reduce potential misappropriations thus minimizing financial risk.
Also a good quality control team will be established to ensure that there will be no losses encountered due to spoilage of products, spillage, or delivery of contaminated milk to the firm.
To avoid fire or explosions of any kind, the staff will be trained on fire fighting skills and operation of firefighting equipment that will be place on strategic point in the premise.
And to avoid further losses, all the buildings, products, machines, vehicles and staff will be put under suitable insurance covers so as to spread the effects of losses in case of an event of occurrence of any peril.
EXIT AND HARVEST STRATEGY
In the event of unfavorable business that requires winding up of the business, the following exit strategies will be applied:
1. Customer and supplier placement strategy-i.e. The customers and suppliers/ producers of Ngetio’s dairy plant will be smoothly handed over to another interested business as a going- concern to allow them to continue with their activities.
2. Pay out any outstanding debts to creditors/suppliers.
3. Collect any amounts outstanding from debtors.
4. Sell all the machines and equipments to other firms in the same line of business.
5. The organization can also be sold as a going concern to other firms or companies.
The firm will concentrate more on the product which is more profitable in the market by allocating more resources on its production.
In harvest strategy also private sale of shares will also be used. The advantage of using the strategy is giving opportunity to other persons who may want to joint as partners in future to acquire shares in the organization and continue to benefit from the organization.
It will also enable the organization acquire additional funds for expansion of the business without necessarily having to source from financial institutions.
1. Pre operational cost of the business; Preoperational cost of the business:-
(a)-Cost of the construction of the processing premises with 5 rooms ranging 4x4metres to 20x20metres at ksh.750000.
(b)-Construction of a biogas unit (fixed dome biogas plant) and 64m2 zero grazing unit of 40 dairy cattle at ksh.600000
(c)-Construction hydrum water supply system to provide water full time to the plant ksh.300000
(d)-Purchase of equipments and containers and installation cost ksh.200000
(e)-Purchase of pick-ups each costing ksh.2300000-ksh.4600000
(f)-Purchase of initial raw milk of about 500 litres at ksh.30 per litre-ksh.15000 per day.
(g)-Proposed capital - ksh.6450000
-Own contribution 20% of total cost -ksh.1290000
-Funds from borrowing sources = ksh.5160000
WORKING CAPITAL REQUIREMENTS
(a)- Personnel salary and fringe benefits=15 personnel at ksh.10000 per month-150000
(b)-Vehicle running expenses=2 vehicles at ksh.4000 per day for 26 days-8000 by 26=ksh.208000
(c)-Raw materials (milk) 5250 litres per day at ksh.30 for 30 days=5250x30x30=ksh.4725000
(d)-Other materials-Reagents, bottles, crates=ksh.100000
Total requirements -150000+208000+4725000+100000=5183000 per month
For six months-ksh.31098000
(e)-Current assets for the relevant period is expected to have a value of ksh.21200000
Therefore net working capital is-ksh.9898000
After six months it is expected that business will be able to run itself by using the revolving working capital to finance its short term operations.
NGETIO’S PRO-FORMA INCOME STATEMENT FOR THE YEARS ENDED
31 DECEMBER 2010 AND 2011
Details 2010(000) 2011(000)
Sales (average) 154980 295200
Cost of Sales (average) 56700 108000
Gross profits 98280 187200
Personnel Salaries and Wages 1800 1890
Motor-Vehicle Running expenses 2496 4620.8
Depreciation: Building 450 960
-Motor vehicles 920 1150
Maintenance -Motor Vehicles 1290 1400
-Plant and Machinery 165 200
Miscellaneous Expenses 5008 7800
Selling and Distribution Expenses 15498 29520
Auditing and Accounting Fees 300 250
Provisions for Building repairs 100 345
Interest on loan 1109.8 29136.8 709.8 48845.6
Net profits 69143.2 138354.4
NGETIO’S PRO-FORMA BALANCE SHEET FOR THE YEAR ENDED 31 DECEMBER 2010
Details 31/Dec/2010 31/Dec/2011
Buildings 750000 1250000
Motor Vehicles 4600000 8975000
Plant and Machinery 1100000 310000 Furniture 200000 325000
Other Fixed Assets 7400000 6420000
Total fixed assets 14050000 17280000
Stock 640000 890000
Cash at Bank 13000000 21000000
Cash at Hand 4500000 6500000
Debtors 6725000 7150000
Prepaid Expenses 4100000 4500000
Total assets 43015000 57320000
Initial Capital 12100000 19800000
Retained Profits 4000000 15265400
Long term loans 14500000 12000000
Creditors 6500000 7500000
Short term loans 5640000 2220000
Bills payable 275000 534600
Total liabilities and capital 43015000 57320000
CASH FLOW PROJECTION
31st March 30th June 30th Sept. 31st Dec 20
Reported Net profit before tax 2718000 3412000 4053000 4072000
Depreciation 1680000 1728000 1960000 2140000
Interest expense 200000 340000 400000 400000
4598000 5480000 6413000 6612000
Working Capital adjustments
Increase in-Stock 200000 400000 460000 460000
-Debtors 125000 178000 204000 250000
- Bills Receivables - 120000 150000 280000
4273000 4782000 5599000 5622000
Tax (estimate) 230000 245000 260000 110000
Net Cash flow From Operating Activities 4043000 4537000 5339000 5347000
Cash flow from investing Activities
Fixed Assets - (1200000) - (2300000)
Net cash out flow from investing activities - (1200000) - (2300000)
Partners’ capital (increase) - - - 2000000
Bank loan 5000000 - - -
Net cash flow from financing activities5000000 - - 2000000
9043000 3337000 5339000 5647000
Cash and cash equivalent at-beginning5640000 6000000 6400000 6800000
-Year-end values. 14683000 9337000 11739000 12447000
-The operations will partly be financed through partners’ contributions and partly outsourced from financial institution in form of loan until the time when business starts to generate sufficient working capital to be able to finance its operations.
CAPITALIZATION OF THE BUSINESS
-The capital employed should be justified fully by its earnings; this can be achieved by avoiding overcapitalization and also undercapitalization.
The initial capitalization will be composed of: Partners Capital Contribution
: Loan capital
BREAK EVEN LEVEL
-Profitability will be measured using the following ratios:
1. Return on capital employed= profit before interest and tax x 100
6914320+1109800/12100000= 66.3% 138354400+48845600/19800000=94.5%
2. Profit Margin = Profit before interest and tax x 100
3. Turnover ratios = Sale
154980000/12100000=12.8 times 138354400/19800000=7 times
SUMMARY OF THE FINANCIAL STATEMENTS
The financial statements estimates and projection were arrived at by making estimates of the average forecasted sales of the business. This was arrived at based on research carried out and well calculated estimates of the costs to be faced, the expected profit margin, and the stability of the prices in the market, depending on the foreseen demand of the products.
It is expected that with all the conditions that call for the success of the business being constant, then the business will be growing at a very high rate hence ensuring supply of quality milk products to the market and at the same time ensuring profitability to the business, to the farmers and other beneficiaries of the project.
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