CASTOR PLANT, THE AGRIC OIL BUSINESS. Complete Biz Plan.

The Complete Business Summary of Setting up a Castor Farm & Plant.
This profile envisages the establishment of a plant for the production of castor oil
with a capacity of 1,000 tonnes per annum.
The present demand for the proposed product is estimated at 1,250 tonnes per annum.
The demand is expected to reach at 2,947 tonnes by the year 2017 .
The plant will create employment opportunities for 27 persons.
The total investment requirement is estimated at Birr 6.66 million, out of which Birr
4.09 million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 29 % and a net
present value (NPV) of Birr 5.82 million, discounted at 8.5 %.
II. PRODUCT DESCRIPTION AND APPLICATION
Castor oil is processed from castor beans. It has a distinct feature and a peculiar
composition that makes it very versatile when is used as a raw material. It has got
applications in hydraulic fluids, paints and varnishes, surfactant and in the production of
synthetic fibers and dibasic acids.
III. MARKET STUDY AND PLANT CAPACITY
A. MARKET STUDY
1. Past Supply and Present Demand
Castor oil has got wide application in hydraulic fluids, paints and vanishes, surfactant in
the production of synthetic fibres, pharmaceuticals, cosmetics and dibasic acids.
Although it is an industrial raw material or intermediate input, the user industries in
Ethiopia are at low stage of development currently. However, due to the conducive
conditions created for investment a number of projects in the chemical sector are coming
up recently in various parts of the country. Therefore, its demand is expected to grow
with the growth of the manufacturing sector.
On the other hand, castor oil has a very wide demand in the international market
especially in countries where the user industries are developed. The market in Europe
alone ranges from 500,000 to 750,000 tonnes.
As there are no plants that produce castor oil in the country, the limited amount that is
required by the existing users is totally met through import (see Table 3.1).
Table 3.1
IMPORT OF CASTOR OIL
Year Volume (Tonnes)
1999 6.63
2000 8.45
2001 0.80
2002 12.08
2003 6.40
2004 5.83
2005 8.63
Source :- Compiled from Customs Authority.
As could be seen from Table 3.1 the imported quantity during the past seven years ranges
from 5.8 tonnes to 12.08 tonnes, except an exceptional figure for the year 2001 which is
0.8 tonnes. The annual average over the last seven years is about 7 tonnes
Since the domestic market is not attractive, currently the general recommendation for a
county like Ethiopia is to export a substantial amount of what is produced. As mentioned
earlier, there is no problem of demand in the international market. Hence, Ethiopia can
capture at least 1% of the European market which ranges from 5,000-7,500 tonnes per
annum. However, for the purpose of this new project only 25% of the potential market,
which is at minimum 1,250 tonnes, is estimated as the present effective demand.
2. Projected Demand
Due to the development of the castor oil user industries in Europe, the export market is
very wide. Therefore, the supply to the export market can be increased at a rate of 10%
annually. The demand projection made based on this assumption is presented in Table
3.2.
Table 3.2
POTENTIAL DEMAND FOR CASTOR OIL
Year Quantity (Tonnes)
2008 1,375
2009 1,512
2010 1,664
2011 1,830
2012 2,013
2013 2,214
2014 2,436
2015 2,679
2016 2,947
3. Pricing and Distribution
By considering the imported price of castor oil and subtracting costs of duty and
transportation, a factory gate price of Birr 9,000 per tonne is recommended.
The factory can get its market outlet through foreign agents or directly selling to bulk end
users in the international market.
B. PLANT CAPACITY AND PRODUCTION PROGRAMME
1. Plant Capacity
Based on the market study shown above, the potential demand of castor oil for the year
2008 will be 1375 tonnes, and this demand is projected to grow to 2679 tonnes by the
year 2015. For the purpose of this project, a plant capacity of 1,000 tonnes of castor oil
is proposed. The plant will operate single shift of 8 hours a day and for 300 days a year.
Production can be increased by operating the plant double shift for 16 hours a day or
three shift for 24 hours a day, if the market warrant.
2. Production Programme
Considering the time required for market penetration and skill development, the plant is
assumed to start production at 75% of its capacity in the first year, at 85% in the second
year, and finally reach at 100% in the third year and then after. Table 3.3 shows
production build-up programme.
Table 3.3
PRODUCTION PROGRAMME
Year 1 2 3 and then after
Capacity utilization % 75 85 100
1. Castor oil (tonne) 700 850 1,000
2. Expeller cake (tonne) 1,087.5 1,232.5 1,450
Total 1,787.50 2,082.50 2,450
IV. MATERIALS AND INPUTS
A. RAW AND AUXILIARY MATERIALS
The major raw material for producing castor oil is castor bean. This raw material can be
obtained partially from SNNP region, and the rest can be procured from neighbouring
regional states of the country.
Castor oil plant requires auxiliary materials such as sacks, metallic drums, and other
inputs. These materials can be procured both from local and foreign markets. Table 4.1
presents the details of raw and auxiliary materials including related annual expenditure.
MACHINERY AND EQUIPMENT REQUIREMENT AND COST
Sr. Description Cost (‘000 Birr)
No.
Qty
(No.) LC FC TC
1 Cooker 1 - 500 500
2 Expeller (complete unit) 1 - 2,000 2,000
3 Filter Press (with seed cleaner) 1 - 750 750
4 Boiler 1 set - 200 200
5 Drum washer and filter 1 - 200 200
6 Laboratory equipment Req - 20 20
7 Weighting scale 1 20 - -
8 Tanks (setting, decanting) Req 50 - -
9 Other accessories Req - 100 100
FOB price 70 3,770 3,770
Bank charge, insurance, customs,
handling charges, etc.
- 250
CIF Landed Cost 70 4,020 4,090
2. Land, Building and Civil Works
Land area required for the plant is 1,000 m2
. Built-up area for factory and administrative
buildings, and others for general purpose will be 500 m2
. At a land lease value of Birr
1.0 per m2
, the total land lease value will be Birr 80,000. At a unit (per m2
) building cost
of Birr 1,500, the total cost of buildings, including cost of site preparation and
development will be Birr 750,000. Thus, the total cost of land, buildings and civil works
will be Birr 830,000.