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21.

PROFILE ON PRODUCTION OF COTTON


SEED OIL

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TABLE OF CONTENTS
PAGE
I.

SUMMARY

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II.

PRODUCT DESCRIPTION & APPLICATION

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III.

MARKET STUDY AND PLANT CAPACITY


A. MARKET STUDY
B. PLANT CAPACITY & PRODUCTION PROGRAMME

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21-4
21-6

IV.

MATERIALS AND INPUTS


A. RAW MATERIALS
B. UTILITIES

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21-7
21-8

V.

TECHNOLOGY & ENGINEERING

21-9

A. TECHNOLOGY
B. ENGINEERING

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21-10

VI.

MANPOWER & TRAINING REQUIREMENT


A. MANPOWER REQUIREMENT
B. TRAINING REQUIREMENT

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21-12
21-12

VII.

FINANCIAL ANALYSIS
A. TOTAL INITIAL INVESTMENT COST
B. PRODUCTION COST
C. FINANCIAL EVALUATION
D. ECONOMIC BENEFITS

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21-13
21-14
21-15
21-16

I.

SUMMARY

This profile envisages the establishment of a plant for the production of cotton seed oil
with a capacity of

4,128 tonnes

per annum.

The present demand for the proposed product is estimated at 59,313 tonnes per annum.
The demand is expected to reach at 184,350 tonnes by the year 2020.
The plant will create employment opportunities for 51 persons.

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The total investment requirement is estimated at Birr 45.26 million, out of which Birr 33
million is required for plant and machinery.
The project is financially viable with an internal rate of return (IRR) of 33 % and a net
present value (NPV) of Birr 48.18 million discounted at 8.5%.
II.

PRODUCT DESCRIPTION AND APPLICATION

Cotton seed oil is derived from the seeds of various species of cotton that are grown
primarily for their fibres. The oil and protein contents of the seeds vary with the variety
and agroclimatic conditions. Some varieties may have up to 25% oil content.
Refined cotton seed oil is used mainly for edible purposes such as salad and cooking oils,
shortening, margarine and to a lesser extent in the packing of fish and cured meat. Low
grade oil is used in the manufacture of soaps, lubricants and protective coatings.
The by-product of the proposed plant is expeller cake which is used for animal feed.
Cotton seed oil is a resource based product that will substitute the imported vegetable oil.

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III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past Supply and Present Demand

Cotton seed is one of the varieties of oil rich seeds used for cooking and food
manufacturing. As compared with animal fats, most vegetable oils are considered more
desirable dietary ingredients. Nigger seed, sesame seed and linseed are export oil seeds
having more value in the international market as compared with the local edible oil
market. Therefore, most edible oil mills in Ethiopia use cotton seed and rape seed as their
raw material.
Even though the supply of edible oil is met through both domestic and imported products
the market is quite dominated by imports. During the period 2000-2005, the highest
market share local production could capture was 26% of the total supply which was
attained in 2003, while the average for the period of analyses was 15% (see Table 3.1).
Table 3.1
SUPPLY OF EDIBLE OIL IN TONNES
Year

Domestic**

Share
2000
6579 8.50
2001
6,637 21.12
2002
8,329 19.59
2003
7,993 26.40
2004
8,027 6.18
2005
6,931 7.79
AVERAGE
7,416
15
Source : * External Trade Statistics.
** Statistical Abstract, CSA.

Import*
70,789
24,785
34,196
22,283
121,812
82,014
59,313

Total

Share
91.5
77,368
78.9
31,422
80.4
42,525
73.6
30,276
93.8 129,839
92.2
88,945
85
66,729

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As can be seen from Table 3.1, domestic production of edible oil was fluctuating from
year to year around a mean figure of 7,416 tonnes. On the other hand, import of edible
oil has shown a substantial increase during the recent two years, i.e., year 2004 and 2005.
The import level which was in the range of 22,283 tonnes and 34,196 tonnes during the
year 2001-2003 has increased to 121,812 tonnes and 82,014 tonnes during 2004 and
2005, respectively.
Total apparent consumption (total supply) during the past six years ranged from 30,276
tonnes (2003) to 129,839 tonnes (2004). The mean apparent consumption during the
period of analyses was 66,729 tonnes, and this amount is considered to represent current
effective demand. The current unsatisfied demand which excludes local production
(about 7,416 tonnes) would, thus, be 59,313 tonnes.
2.

Projected Demand

The demand for edible oil is directly related with food consumption or growth in standard
of living and population. Food consumption of families increases with growth in income.
Since in poorest countries like Ethiopia most of the people are undernourished due to the
lowest level of per capita income, the growth in income for families will result in growth
in consumption of edible oil and food. Thus, the demand for edible oil is projected with a
slight modification of GDP growth rate attained in 2004 or 10 %. The projected demand
for edible oil is presented in Table 3.2.

Table 3.2

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PROJECTED DEMAND FOR EDIBLE OIL (TONNES)
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3.

Projected Demand
58,740
64,614
71,075
78,183
86,001
94,601
104,061
114,468
125,914
138,506
152,357
167,592
184,351

Pricing and Distribution

The current retail price of domestic edible oil per liter is Birr 12. The recommended price
for the envisaged project is Birr 7. Since edible oil should be available in the nearest
retail shop for households; to the consumer's convenience, intensive distribution through
delivery to the retailers as well as its own shops in selected centers is recommended.
B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

The annual production capacity of the envisaged plant is 4,128 tonnes of refined oil and
11,000 tonnes of expeller cake, based on 300 working days and 3 shifts per day.
2.

Production Programme

Considering the gradual development of processing skill and marketing of the products,
the rate of capacity utilization during the 1 st and 2nd year of production will be 70 and

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85%, respectively. Full capacity will be attained in the third year and then after. Table
3.3 shows the production program of the proposed project.
Table 3.3
PRODUCTION PROGRAMME
Sr.

Production

No.
1
Cotton seed oil (tonnes)
2
Expeller cake (tonnes)
3
Capacity utilization rate (%)
IV.

MATERIAL AND INPUTS

A.

RAW MATERIALS

Production Year
2

2889.6
7700
70

3508.8
9350
85

3-10
4128
11,000
100

The principal raw materials and inputs are cotton seed, caustic soda & bleaching earth.
Cotton seed can be obtained from cotton ginning plants operating in the region or other
parts of the country. Caustic soda and bleaching earth are also obtained locally. The
annual requirement and cost of these inputs are indicated in Table 4.1. The total annual
cost of raw material is estimated at Birr 7,282,200.

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Table 4.1
ANNUAL RAW MATERIAL REQUIREMENT & COST
Sr.

Materials

No.
1
2
3
4

Cotton seed
Caustic soda
Bleaching earth
Replacement of drums

Qty
(Tonnes)

Cost (000 Birr)


LC
FC
TC

22,800
18
90
1,550

6,840
108

6,840
108
180
154.8

180
154.8

(75% packed in drums


and 10% replacement)
Total
B.

7,102.8

180

7,282.2

UTILITIES

Electricity, furnace oil and water are utilities of the proposed project. Table 4.2 indicates
the annual utilities requirement and cost at full capacity. Process water shall be supplied
by submersible pumps installed by the project.
Table 4.2
ANNUAL UTILITIES REQUIREMENT & COST
Sr.
No.
1
2
3

Utility
Electricity
Furnace oil
Water
Total

Unit
kWh
Tonne
m3

Qty
2,700,00
0
360
2,000

Cost
(000 Birr)
1279.8
1,947.6
20
3,247.4

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V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Edible oil processing is classified in two groups: crude and refined oil production.
Cotton seed first conveyed to the cleaning unit in which magnetic separators, vibratory
screens & pneumatic cleaners are involved. The clean seed then enters the delinting
section where the lint is removed from the seed and then cleaned and bailed. The
delinted cotton seed black seed, is further conveyed to the decortication unit in which
the husk is removed by decorticators and screening machines. The meat with about 10%
husk enters to the pressing unit.
Before the seed is pressed, it shall be conditioned in the cooker with steam. Conditioning
has the following functions:
a)

Rupture the oil cells by the action of heat and moisture making oil readily
available for extraction

b)

Increase the fluidity of oil by increasing the temperature of meat and oil,

c)

Coagulates the protein portion of meat and

d)

Dries the meat to a moisture content suitable for extraction

The cooked meat is then pressed to produce crude oil which shall be screened and filtered
before entering the refinery unit.
In the refinery, there exist three major operations: neutralization, bleaching and
deodorization. In the neutralizer, the free fatty acid content of crude oil shall be lowered
by adding caustic soda.

The colour of oil shall be controlled in the bleacher using

bleaching earth. Finally the components of oil which are responsible for the odour are
removed by the deodorization process. The final refined oil is then dispatched for sales.

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2.

Source of Technology

The technology of cotton oil processing can be acquired form different suppliers. For
example, the following company may be required for quotation.
Plot No. 2 Dhormajuan Industrial Estate
Gokuldham Main Road
Rajkot 360004, Gujarat
India
Fax: 91281 2366010
B.

ENGINEERING

1.

Machinery and Equipment

The list of machinery and equipment is indicated in Table 5.1.

The total cost of

machinery is estimated at Birr 33 million of which Birr 27.5 million is required in foreign
currency.
Table 5.1
LIST OF MACHINERY AND EQUIPMENT
Sr.
No.
1
2
3
4

5
6
7
8
9

Description
Cotton seed cleaning unit
Decortications unit
Press section
- Press
- Screen & filter
Refinery
- Neutralizer
- Washer
- Bleacher
- Deodorizer
Boiler
Submersible pump
Cooling towers
Laboratory equipment
Barrel Washing unit

Qty.
(No)
1
1
1
1

1
1
1
Set

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2.

Land, Building & Civil Works

The total area of the project is 10,000 m 2 of which 3200 m2 is a built-up area. The cost
of building is estimated at Birr 6.4 million.

The lease value of land is about Birr

800,000, at a rate of 1 Birr per m2 for 80 years.


3.

Proposed Location

The major cotton growing areas are found in Gamogoffa and South Omo, around
Abaya & Chamo Basin below 1400m. For its proximity to the raw material source and
market, availability of infrastructure, Arbaminch is selected to be the best location for the
envisaged project.
VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

The envisaged project required 51 employees. The list of manpower and annual labor
cost are indicated in Table 6.1. The total annual cost of labour is estimated at Birr
592,500.

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Table 6.1
MANPOWER REQUIREMENT & LABOUR COST
Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14

B.

Manpower
General manager
Secretary
Sales and marketing officers
Accountant
Production & tech. head
Clerk
Mechanic
Purchaser
Driver
Operators
Ass. Operators
Labourers
Laboratory technicians
Guards
Sub-total
Benefit (25% BS)
Grand total

Req.
No.
1
1
2
1
1
1
3
1
1
12
9
12
3
3
51

Monthly Salary
(Birr)
3,500
800
3,000
2,000
2,500
400
4,500
1,000
800
8,400
3,600
3,600
4,500
900
39,500
9,875
49375

Annual Salary
(Birr)
42,000
9,600
36,000
24,000
30,000
4,800
54,000
12,000
9,600
100,800
43,200
43,200
13,500
10,800
474,000
118,500
592500

TRAINING REQUIREMENT

On-the-job training shall be carried out during plant erection and commissioning by
experts of machinery supplier. The total cost of training is estimated at Birr 50,000.

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VII.

FINANCIAL ANALYSIS

The financial analysis of the cotton seed oil 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

30 days

Work in progress

2 days

Finished products

30 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
42.26 million, of which 51 per cent will be required in foreign currency.
The major breakdown of the total initial investment cost is shown in Table 7.1.

Birr

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Table 7.1
INITIAL INVESTMENT COST
Sr.
No.
1
2
3
4
5
6
7

Total Cost
Cost Items
Land lease value
Building and Civil Work
Plant Machinery and Equipment
Office Furniture and Equipment
Vehicle
Pre-production Expenditure*
Working Capital
Total Investment Cost
Foreign Share

(000 Birr)
800.0
6,400.0
33,000.0
100.0
200.0
2,625.6
2,136.6
45,262.2
51

* N.B Pre-production expenditure includes interest during construction ( Birr 2.47 million) 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 16.89
million (see Table 7.2). The material and utility cost accounts for 62.31 per cent, while
repair and maintenance take 0.74 per cent of the production cost.

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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)
Items
Raw Material and Inputs
Utilities
Maintenance and repair
Labour direct
Factory overheads
Administration Costs
Total Operating Costs
Depreciation
Cost of Finance
Total Production Cost
C.

FINANCIAL EVALUATION

1.

Profitability

Cost
7,282.20
3247.4
125
284.4
94.8
189.6
11,223.40
3700
1974.99
16,898.39

%
43.09
19.22
0.74
1.68
0.56
1.12
66.42
21.90
11.69
100

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.

21-16

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

33 %

Sales Variable Cost


3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The projects initial investment will be fully recovered within 3 years.
4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 33 % and the net
present value at 8.5% discount rate is Birr 48.18 million.
D.

ECONOMIC BENEFITS

The project can create employment for 51 persons. In addition to supply of the domestic
needs, the project will generate Birr 27.37 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 import of vegetable oil.