VI.

Feasibility Study for Almond Subsector Plan:

Operationalising processing plant in Mazar

The comprehensive feasibility study of the MRRD selected business opportunity ‘Operationalising
processing plant in Mazar’ for the almond subsector shall be presented in this section, covering both
the economic viability and technical feasibility. The Economic Viability analysis includes market
analysis, competitive analysis, business justification, marketing plan, alternative financing options,
realistic cost flow statement, cost benefit analysis, breakpoint point, and contribution of potential
entrepreneurs. The Technical Feasibility analysis includes: demand and supply analysis, availability of
required resources, availability of technical know-how, and alternative supply sources. There is a
special focus on Balkh.

6.1. Business description

Operationalising the now defunct nut processing factory in the industrial park in Mazar, for
deshelling and packaging of almonds according to HACCP standards, and diversify the products with
different nut types. End products will be sold in basic packaging with a label ‘Made in Afghanistan’.
Products can be sold directly to buyers in high-value markets, targeting new export markets, because
of HACCP mark (Japan, Europe, US) or to an exporter. In a later stage, product could be packaged in
more consumer-friendly bags (potentially in cooperation with buyer) in order to capture more value.

Services Processing and packaging almonds

Organisational model Factory setting.

End products Sorted and graded products packaged in boxes with labels for repackaging at
buyers’ warehouse

Estimated employment Direct employment: 24 (predominantly women)

Indirect employment: women on a contract base for deshelling 5 in each
district = 15, this number will increase when company becomes profitable and
grows to full production capacity.

Farmers: (10 in each district 41) + 30

41
Khulm, Daulatabad and Balkh

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 66
6.2 Economic Viability

The Market / Overview

A Industry Analysis

Almonds are a native crop to Afghanistan and have been commercially exported for decades. It is
sold in-shell as well as kernels. Almonds have a high nutritious value and contain a high level of
calories. They are rich in calcium, phosphorus, and potassium.

The almond subsector represents a strong subsector – particularly in the North of Afghanistan - with
present levels of national production at 16,000 M tonnes per annum (2003) 42 and indicative levels
of production in 2005 as high as 38,743 M tonnes (export, 10,765 M tonnes)43 . Almond cultivation
covers approximately 11,000 hectares of land with average yields of 1.4 Mt / hectare per annum 44 .
The main producer locations are in Ghorband district in Parwan, Balkh, Kunduz and Samangan.
Current production levels in Balkh sit at around 5,500 tonnes per annum across 5,500 hectares land.
Export was estimated at $9.4 M in 2003 (“24 per cent of Afghanistan’s horticultural exports”). 45

There are over 40 varieties of almonds grown in Afghanistan. Satyarbahi variety is the most popular
and profitable. In the North of Afghanistan, the almond season stretches from July until the end of
September. Presently only two almond products are sold: ‘in shell’ or kernels (in a ratio of at least 2
to 1). 46 Almonds are also used to make ‘nakul’ candy in Afghanistan (sugared almond). Besides this,
there is limited formal processing activity taking place in –country.

Diagram 3B: Hectares under Almond Production 1978-2003

Source: Altai 2004

A significant amount of almonds are currently exported from Afghanistan – in their shells or
‘deshelled’ - and most commonly to Pakistan and India. There is an opportunity to improve
consumer friendly packaging, to formerly process almonds / deshell, and to market both raw almonds
42
Cited in Altai 2004. Severe drought impacted levels of production between 1996 and 2003.
43
Cited in ADB Landell Mill Limited March 2007, 2005 data.
44
Altai compares this to other countries (US=3.46 Mt/Ha, Pakistan=2,47Mt/Ha, China=2,20Mt/Ha, Turkey=2.11Mt/Ha, Iran-0.91Mt/Ha), Altai
2004.
45
Cited in OTF 2006 from 2003 data.
46
ADB Landell Mill Limited March 2007

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 67
(within and outside of Afghanistan) and almond products such as nakuls (sugared almonds), flaked
almonds and almond oil. Western markets are currently critical of inconsistent production, quality
and price.

In Balkh, almond sorting and grading is currently carried out by labourers in the market place. This is
an informal service with little in terms of quality control. As a result, the quality of the sorting /
grading is of inconsistent quality and there are often stones and bitter almonds mixed in with the
‘good’ almonds to increase the weight. There is no attention paid to hygiene, and no formal
‘production line’. Packaging consists of large bags (35-105 kg) for bulk transport, but there is no
‘consumer friendly’ packaging. Deshelling is carried out informally by labourers’ families / women (at
least 100 women). The local processing plant is currently not operational and machinery is yet to be
installed since it was ‘inappropriate’ (too big and caused broken kernels). In terms of other products,
almond / almond by-products are used to make nakul for domestic consumption (there are 2-3 nakul
factories in Mazar), but there are limited other almond products such as flaked almonds or almond
oil.

Beside generic horticultural constraints, constraints specific to the almond subsector include the poor
sorting and inadequate grading leading to inconsistent quality (bitterness of shelled almond - 2% have
bitter kernels). This is a problem for international markets outside of India / Pakistan. The subsector
also has limited present capacity to add value in the production area, and increase efficiency due to
disorganized production, a lack of infrastructure (electricity, machinery) and inconsistent volumes47 .
A general lack of technical knowledge about processing, an absence of standards for quality in
production or manufacturing and a lack of internationally recognised certification authority is
inhibiting the development of higher value products and broader product ranges.

The following SWOT analysis provides a comprehensive overview of strengths, weaknesses,

opportunities and threats in the almond subsector (with a focus on Balkh).

47
“If one [processing unit] was put up, for instance in Ghorband, with production fluctuating between 500-1,000 tonnes, any plant would need to
source nuts from other areas and this would not be cost effective” cited in ADB Landell Mill Limited March 2007 (p.45.).

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 68
SWOT-analysis ALMOND SUBSECTOR/BALKH PROVINCE
STRENGTHS
- Competitive export product for Afghanistan
- Existence of a domestic market
- The Afghan product is well-known in certain
export market (India)
- Climate in the north is suitable for growing
almonds
- High level of production in Balkh (5,500
MT/annum with approximately 55 tonnes
traded per day in Mazar between July and
October.)
- Large investments in rehabilitation of orchards
and nurseries, building technical capacity and
association building
- Product does not require cold storage/easy
storage
- Large variety of almonds available (>20
varieties in North)
- Existence of a deshelling pant (but not
functioning)
WEAKNESSES
- Inconsistent supply and quality
- Relative high cost of raw products?
- Lack of quality control (sorting and grading)
and certification
- Lack of packaging and labeling
- Lack of other value addition by processing
- Lack of diversified export buyers
- Lack of organization with farmers and traders
- Lack of direct linkages with export markets
- Lack of professional (‘honest’) business
conduct
- General low level of technical knowhow and
marketing skills
Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07
OPPORTUNITIES
- Sorting, grading, quality control, certification
- Packaging and labeling
- Low-value processing, like chafed, nakul, etc.
- High-value processing, especially almond oil
- Addressing new export markets (may require
meeting higher standards)
- Training farmers and traders for better grading
and sorting
- Selling deshelled product
- Upgrading existing deshelling plant
- Training traders in marketing/assisting with
marketing
THREATS
- Infection of almonds by Aflatoxins
- Competition on international markets is getting
more intense (US almonds in Pakistan)
- Competition on price?
- Tajikistan almonds low price
- International competitors entering domestic
markets as well
- Higher standards in US
69
B Market Analysis

The major Afghan markets for almonds are Kabul (largest), Mazar and Kunduz. Kabul market is the
central trading hub for export of goods into Pakistan and India. In Mazar, 80 per cent of traders
channel produce to Kabul, and 20 per cent directly to Pakistan / India. Literature and field research
suggest that there are limited almonds going north to Central Asia and Russia.

Traders cite that 80 per cent of Afghan produced almonds are exported.48 In Kabul, approximately
50 per cent of almonds are exported to India (India buys almost all soft shelled almonds from Kabul
and all of the first quality kernels), 30 per cent to Pakistan (Pakistan buys only second quality
kernels for their confectionary industry), and 20 per cent to local markets with a small quantity
going to Iran and trial shipment to Saudi Arabia.49 The average wholesaler margin in Kabul is 18 per
cent. Payment methods vary but some traders receive 50 per cent of contract price in advance.

Afghan dried fruit and nuts have a mixed reputation in foreign markets. There is certainly demand
for Afghan almonds in regional markets, particularly in countries such as India50 where they have a
favourable view on Afghan dried fruit and nuts (see OTF report) but a lack of consistent quality,
standards and certification (including demonstrating the almonds are aflatoxin-free51 ), and poor
packaging, production and processing largely constrains their export to the US or Europe despite
potential interest from buyers.52

C Co mpetitor Analysis

International competitors include USA (Californian almonds are even found in Kabul’s bazaars!),
Spain, Italy, Portugal, Morocco, Tunisia, and Turkey. Major competitors include USA (800,000 M T
/ annum), Iran (105,000 MT / annum) and Turkey (50,000 MT / annum). 53 Types of almonds sold
on the international markets include in-shell, shelled, blanched, slivered, chopped, flour, roasted,
sweetened and salted. These are used in snacks, in confectionary (e.g. marzipan, nougat, ‘turron’), in
food products (e.g. almond milk, ice cream, chocolate), culinary recipes, and cosmetic bases. Whilst
the US production of almonds is efficient and ‘high tech’, weakness include ‘mediocre taste’ and
increasing ‘adherence to the most stringent EU phytosanitary standards’ (OTF 2006). Turkey and
Morocco have upgraded their industries to market more almonds in Europe. Afghanistan markets
most of their almonds ‘within the region’ (India in particular as well as Dubai) where Afghan almonds
are rated highly against other almonds due to their superior taste and good historical reputation.
Outside of the region, it is difficult to market Afghan almonds due to the lack of food standards, and
quality assurance. Inconsistent quality and quantity also deters potential buyers. Afghan almonds are
relatively expensive (as high as $8 / kg for ‘satyarbahi’ variety at the farmgate) against almonds sold
on the international market (average prices $2-3 / kg). Indian / Pakistani buyers are prepared to pay

48
Preliminary key informant discussions by research team, Mazar Aug 2007
49
ADB Landell Mill Limited March 2007
50
They currently import 35 per cent of the world supply of almonds (Altai 2004)
51
Aflatoxins are naturally occurring mycotoxins that are produced by many species of Aspergillus, a fungus, most notably Aspergillus flavus and
Aspergillus parasiticus. Aflatoxins are toxic and carcinogenic.
52
Case study for the enabling environment conference (AKF 2007) and ADB Landell Mill Limited March 2007
53
Altai 2004

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 70
the premium for highly regarded Afghan dried fruit and nut products but European and Western
buyers are less so. To justify their high value on western markets, Afghanistan could brand their
products as ‘fair trade’ or ‘organic’ (Afghanistan’s traditional farming is close to organic).

Balkh markets its almonds on the local market in Mazar, as well as the Kabul market in Afghanistan.
Almonds are then bought and exported to Delhi or Peshawar. Sample prices are shown below.

Farmgate, wholesale and margins for almond varieties in different markets

Market Variety / % of Mkt Dest. mkt FG price Wholesale Av. margin

location type ($) / kg price / kg
Kabul Soft shelled India $11 $13.3 $2.3 / 21%
almonds
Kabul Hard shelled India $1.6 $7.27 $5.67 / 354%
almonds G1
Kabul Hard shelled Pakistan $1.6 $7.11 $5.51 / 344%
almonds G2
Kabul Hard shelled Pakistan $1.6 $5.370 $3.77 / 236%
almonds G3
Kabul Satyarbahi $11.429-
18.571
Kunduz Satyarbahi $9,143-
$12.857
Mazar Satyarbahi 10% in $7.14- $8.57-10 $0.57/ 8%
Mazar 8.57
Mazar Camberi 10% in $4.57 $5.14 $0.57 / 12.5%
Mazar
Mazar Khraidine 15% in $4.12 $4.50 $0.38 / 9%
Mazar
Mazar Mura Wagi54 30% in $2.14 $2.50 $0.36 / 17%
Mazar
Peshawar Satyarbahi $14.286-
21.429
Source: Derived from ADB Landell Mill Limited March 2007

D C usto mers/markets Kabul/direct export

Over 80 per cent of almonds (in shell and deshelled) are exported to foreign markets (India and
Pakistan as well as Dubai) but there are limited export channels. Almonds are sold in their shells and
deshelled in bulk with little added value in terms of packaging / processing. Traders sell directly to
Pakistani or Indian traders.

In terms of the domestic market (10-20 per cent of customers), the almond subsector competes with
cheap imported almonds (from as far way as California). Afghan almonds are still regarded as better

54
This type is used for kernel extraction – Mazar this done by hand ($0.029 / kg; 21-28kg per hand / day)

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 71
in terms of taste but the industry now needs to develop cleaner, better packed products and more
consumer friendly packaging volumes. The subsector also needs to develop more product lines in
addition to ‘nakul’. The industry could add value to broken kernels by producing flakes, pieces and
crushed kernels either for industrial or consumer markets, and packaging mixes of products.

E Demand and supply analysis

Figures cited earlier give the breakdown of global producers across different countries. The total
global production of almonds is around one million MT of which Afghanistan contributes less than 2
per cent (16,000 MT). In Balkh, production levels are estimated at 5,500 MT / annum, and ~50
tonnes / day in the season (July – October). Appendix 2 provides the approximate proportion of
production district-wise. Demand for Afghan almonds is high in the Indian and Pakistani markets
which rate Afghan almonds above all other almonds (demand for Afghan almonds outstrips supply).
Demand for Afghan almonds is currently not comparable in Europe as cited earlier. This market
requires food certification and standards of which Afghanistan is acutely lacking. Afghan almond
prices are also cited as ‘high’. If Afghan almonds can improve certification, there is a growing
market for higher value ‘organic and fair trade’ products, which Afghanistan could capture with
appropriate branding.

F Business Justification

Despite efforts by Roots of Peace to establish a processing factory in Mazar, post-production almond
value addition remains largely manual and informal in Balkh province, with traditional / independent
marketing. The following situation thus persists:

• Almond sorting / grading services are basic and quality control does not formally exist

• Deshelling and packaging services are basic and there is an absence of professional processing
services and no varied packaging

• Associations are informal and marketing undeveloped (branding, certification etc)

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 72
Financial Pla n 55

A Capital requirement

Owners Equity: 35,000 US$

MRRD grant: 35,000 US$

Bank Loan: 35,000 US$

Total: 105,000 US$

B Capital Investments

Capital Investments US$

Land: 0
Building: 0
Equipment: 0
Transportation: 16,000
Packaging material: 0
Generator: 15,000
Total 51,000

Note:

Capital requirement to purchase raw material is high, approximately 60,000 – 70,000 US$ or over
half of the operational budget. Due to the limited budget, no capital investment will be made in the
first year. Purchasing land and building will take place in the second year of operation, as is the
purchase of a packaging machine.

Due to the lack of cash, the daily capacity will not be fully utilized in the first year. In the second and
third year of operation, capacity will be increased with at least 50% yearly.

C Financing options (and contribution of potential entrepreneurs)

See A. Loan will be paid back within 18 months, at an interest rate of 13% with a grace period of
four months.
55
In the final Business Plans, some of this data may be tweaked.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 73
D Landed costs
N/A

E Operations Forecast

Total production is 400 kg a day, 10,400 a month, 27MT a month. Production is limited by high
cash requirement (see above)

In the second year of operation, production will increase with 50%, as in the third year of operation.

Income Statement
US$ US$
Sales revenue
Murawaji 416000
Satar Bayee 143000
Qambery/Kaghazi 165750
Khairuddini/Wahidi 146250
Total 871000
Costs of goods sold
Murawaji 280800
Satar Bayee 120900
Qambery/Kaghazi 97500
Khairuddini/Wahidi 97500
Costs of freight 23650
Packaging material 4160
TO TAL 624510
Gross Profit 246490
Expenses
Rent 12000
Utilities (water,electricity,
fuel) 24000
Salaries 57480
Other labor costs 26000
Loan 26600
Deprecation 0
TO TAL 146080
Net Income before Tax 100410
Less: Income Tax 20082
Net Income 80328

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 74
F Cash Flow and Break-Even Analysis

Cash flow Overview

year 1 year 2 year 3
Opening balance 35,000 231,410 431,779
Grant 35,000 0 0
Loan 35,000 0
Collection from
sales 871,000 1,306,500 1,959,750
Total receipts 976,000 1,537,910 2,391,529

Payments
Purchase of land 0 6,286 6,286
Building 0 35,000 0
Purchase vehicle 0 0 0
Rent 12,000 0 0
Packaging line 0 20,000 0
Payment to farmers 596,700 895,050 1,342,575
Transportation 23,650 35,475 53,213
Packaging 4,160 6,240 9,360
Labor costs 57,480 57,480 57,480
Operational
expenses 24,000 24,000 24,000
Loan payments 26,600 26,600
Other expsenses 0 0 0
Total payments 744,590 1,106,131 1,492,914

Balance 231,410 431,779 898,616

Break-Even Analysis

Fixed costs will be divided among the three different products, based on yearly production quantity.

Note: for this feasibility study we used the most common cost-accounting method.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 75
 BREAK-EVEN
ANALYSIS
Fixed Variable TOTAL
Fixed Costs Costs Costs Sales Price Costs SALES
(US$) Allocation Allocated (US$) (US$) BEP (kg) kg/YEAR
Murawaji 119,480 50% 59,740 8.00 5.40 22,977 52,000
Satar Bayee 119,480 12.50% 14,935 11.00 9.30 8,785 13,000
Qambery/Kaghazi 119,480 18.75% 22,403 8.50 5.00 6,401 19,500
Khairuddini/Wahidi 119,480 18.75% 22,403 7.50 5.00 8,961 19,500

G Cost benefit analysis (CBA)

Please refer to all of the above for preliminary cost / benefits. A full CBA will be included in the Draft
Final Report / Business Plan.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 76
Marketing Plan

A Targeting Strategy

The company will strive to develop long-term relationship with buyers in export markets, over time
sorting out the better customers and creating a customer relationship that is based on mutual trust and
continuously delivering good quality products timely and according to the requirements.

The company will consistently spend effort in business development, in order to attract new
customers, over time seizing to work with bad customers, that cannot or will not issue payments
according to the given time schedules.

The company will primarily service export markets with the following products.

Satar Bayee Highest quality product (in shell) United Arab Emirates

Murawaji Low quality high volume (kernel) India

Qambery/Kaghazi (in shell) United Arab Emirates

Khairuddin/Wahidi (in shell) India

The two main markets are traditional markets as India and the United Arab Emirates (Dubai) where
the Afghan products already have a reputation in the first year, but once business is firmly established
in those markets, the company will aim to penetrate new markets (Europe).

B Service Strategy

The company will firstly aim at good quality products, delivered timely and packaging according to
the customers’ specifications.

C Pricing Strategy

The company will continuously monitor prices of competition in Mazar-e Sharif, Kabul, India,
United Arab Emirates, Pakistan and US products in order to maintain a high level of
competitiveness, but will not compete on price alone. Service and cleanliness of products will be
considered as important as pricing.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 77
D Advertising

The company will use direct sales contact with potential new clients as a sales promotion tool. The
company will use other sales tools, like discounts for large quantity orders, and/or special price
offerings off-season when appropriate.

E Sales Forecast

TO TAL
kg per sales price SALES TO TAL SALES
Sales month (US$) (US$)/MONTH (US$)/YEAR
Murawaji 5,200 8.00 41,600 416,000
Satar Bayee 1,300 11.00 14,300 143,000
Qambery/Kaghazi 1,950 8.50 16,575 165,750
Khairuddini/Wahidi 1,950 7.50 14,625 146,250
Total 10,400 87,100 871,000

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 78
6.3 Technical Feasibility

A Manag eme nt

Management

Managing Director/President: Abdul Qateh

End responsible for Overall Management, Finance, Marketing & Sales, and Human Resources.
Vice President /Technical Director: Osman Ghafor

Manager: A local manager will have to be recruited for who will be managing the day to day
operations on the different sites, and have overall control over the staff.

Financial Administration
The company will do the financial administration in the main factory. Accounting software
(QuickBook, etc.) will be bought for the financial administration. The company will receive technical
assistance with the implementation of a professional computerized financial administration and the
use of accounting software from MRRD. At the main factory Internet-connection will be present
and at least one PC for the administration.

Administrative and financial controls

- Bookkeeping system
- Accounting system
- Accounts receivable and account payable management system

B Availability of required reso urces (technical, infrastructure and equipment)

(i) Infrastructure

In the first year, a site will be rented. The businessmen will invest in the second year in a site in
Mazar for the factory unit.

(ii) Equipment / materials

The following would need to be purchased including:

Generator (See financial plan) / locally available56 .

Cardboard boxes (in second year)

56
Full specifications will be shared in final business plan.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 79
40x30x20 cm / brown colour / 3 layer cardboard medium quality 22 Afs / piece
Milad Moeen Co.
Contact name: Abdul Qani Yasinzadeh
Phone: 0700 466 040

(iii) Technical / Business Assistance

The business does not depend on this assistance to be ‘operational’. The company will receive
additional management, finance, marketing and technical training / support (the training support /
plan is described under Appendix 4).

Management support: The Company will receive management support from a Kabul based consultant
during the first year of operations which will be paid for by MRRD. The monthly meetings will be
focused at Coaching, mentoring, troubleshooting, support service contract management, HR
management, monitoring and evaluation. (Total cost = $21,600)

Financial support: The Company will receive Accounting / Quickbook training and assistance from a
Kabul based Consultant in the establishment of a Financial Management System. (Total cost =
$3,800)

Marketing and Business training: The Company will receive a three-day marketing and BDS training
from a Kabul-based BDS provider which will be paid for by MRRD. Modules including marketing,
business development, supply chain management and export. (Total cost = $1,800).

Technical support: The Company will receive in total three days of technical assistance from a
Mazar-based expert which will be paid for by MRRD. The training will focus on work flow production
line and utilization of new equipment. (Total cost = $1,500)

(iv) Raw Materials

Almonds: As stated earlier, during the season (July – October), approximately 55 tonnes of almonds
are traded a day in Mazar (both in shell and deshelled). The businessmen have links to farmers in
Daulatabad, Balkh and Khulm districts and will procure their almonds directly from these
locations.57 The Company will form formal contracts with the farmers. The Company intends to
‘process’ approximately 400kg of almonds a day during the season (July- October).

57
Appendix 2 highlights main production districts of almond in Balkh.

Subsector Analysis and Business Plan Development / North & NE /Economic Viability & Technical Feasibility Dec 07 80