Prime Minister Youth Loan Scheme

First Draft

PRIME MINISTER YOUTH LOAN SCHEME

PRE-FEASIBILITY STUDY

VEGETABLES NURSERY RAISING

PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD

MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH

Government of Pakistan

www.parc.gov.pk

January 2014

1 Contents 1 DISCLAIMER...... 4 2 PURPOSE OF DOCUMENT...... 4 3 INTRODUCTION TO SCHEME...... 4 4 EXECUTIVE SUMMARY...... 4 5 BRIEF DESCRIPTION OF PROJECT AND PRODUCT...... 5 5.1 Techniques:...... 5 5.2 Location:...... 6 5.3 Product:...... 6 5.4 Target Market:...... 6 5.5 Employment Generation:...... 6 6 CRITICAL FACTORS...... 6 7 INSTALLED AND OPERATIONAL CAPACITY FOR VEGETABLE NURSERY RAISING...... 7 8 GEOGRAPHICAL POTENTIAL FOR INVESTMENT...... 7 8.1 Potential Target Markets...... 7 9 PRODUCTION PROCESS FLOW...... 7 10 Project Cost and Benefit Summary...... 8 10.1 Project Economics...... 8 11 Annex...... 12

2 LIST OF TABLES

Table 1 Crops targeted for the plant nursery...... 6 Table 2 Capacity of Farm operation on 0.5 acres of land...... 7 Table 3 Utilization of land...... 8 Table 4 Project Economics...... 8 Table 5 Total Project Cost...... 8 Table 6 Space requirement and its cost...... 8 Table 7 List of Machinery& Equipments and its cost...... 9 Table 8 List of Furniture & Fixture and its cost...... 9 Table 9 Operational & Maintenance cost...... 9 Table 10 Human Resource Requirement its cost...... 10 Table 11 Project financing...... 10 Table 12 Revenue of the Project...... 10 Table 13 Key Assumption...... 10 Table 14 FINANCIAL STATEMENT in PKR...... 11

3 1 DISCLAIMER This information memorandum is to introduce the subject matter and provide a general idea and information on the subject. Although, the material included in this document is based on data / information generated from experiments and field testing by a team of relevant scientists; however, it is based upon certain assumptions which may differ from case to case. The contained information may vary due to any change in any of the concerned factors, and the actual results may differ accordingly from the presented information. The PARC and its employees do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to contact qualified consultant/technical expert, especially designated focal person(s) of this enterprise for reaching to an informed decision.

2 PURPOSE OF DOCUMENT The purpose of this document is to facilitate potential investors in vegetable nursery raising by providing them with a general understanding of the business, with the intention of supporting potential investors in crucial investment decisions. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document/study covers various aspects of project concept development, start-up, production, finance, and business management. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial and error, certain industrial norms and well established research findings that become a guiding source regarding various aspects of business set-up and it’s successful management. Apart from carefully studying the whole document, one must consider critical aspects provided later on, which form the basis of investment decisions.

3 INTRODUCTION TO SCHEME Prime Minister’s Youth Business Loan Programme, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidized financing at 8% mark-up per annum for one hundred thousand (100,000)beneficiaries, through designated financial institutions, initially through National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit-Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

4 EXECUTIVE SUMMARY In Pakistan, vegetables (excluding Potato) are grown on a total area of 253653 hectares during 2011-12 (GOP, 2011-12) with a production of 3110619 tones which is about

4 2.30 % of total crop area. Vegetables are comparatively rich source of vitamins and minerals, which are essential for the maintenance of good health and resistance against diseases. Vegetable yield per unit area is very low in Pakistan. One of the reasons of low yield is non-availability of quality seedlings of high yielding varieties/hybrids. Vegetable seedlings available in the market are of inferior quality. After successful experimentation at Vegetable Programme, Horticulture Research Institute (HRI), National Agricultural Research Centre (NARC), Islamabad, the technology of raising healthy seedling by using peat moss substrate and compost in multipot trays and getting early and late cucurbit crops by raising early & late seedlings had been found very beneficial. However, it needs scale up to reach maximum of beneficiaries of the community. The production of vegetable seedling can be successfully carried in peri-urban and vegetables growing areas of Sindh, Punjab, Balochistan, Khyber Pakhtunkhwa, Gigit Baltistan and Azad Jammu & Kashmir. In Pakistan, cucurbit crops: vegetable marrow, bitter gourd, cucumber, muskmelon, long melon, water melon, bottle gourd and sponge gourd etc are being grown over a larger area. Mostly the farmers are growing cucurbits in the normal growing season (mid February to mid March) by sowing of seeds and when such vegetables are harvested, the markets are flooded with these vegetables and the growers sometimes not even getting back their cost of production. Whereas the prices of the early season cucurbits are always two to three times higher than their normal season. Early crop by 20-25 days can fetch better price than the normal. Nursery of cucurbit crops can be raised in polythene bags under very simple and low cost protected structures like walk-in tunnels. Seedlings of the desired cucurbits are raised in the first week of January up to mid of January and 40-60 days old seedlings are transplanted in the open field from mid February to first week of March. This technology is very effective for producing early crops of cucurbits especially in central and Northern Punjab, Balochistan, Khyber Pakhtunkhwa, Gigit Baltistan and Azad Jammu & Kashmir.

5 BRIEF DESCRIPTION OF PROJECT AND PRODUCT Following key parameters must be addressed as per pre-feasibility study: 5.1 Techniques: The technology comprises of cost-effective techniques of raising of seedlings of economically useful vegetable crops that have been developed and standardized by Research Institutes. The techniques involve; a) Making/Using compost, b) Preparation of potting medium, c) Use of tunnel, use of shade nets, d) Raising seedlings in multipot trays and polythene bags e) Use of supplementary nutrition if required f) Hardening of seedlings etc. g) Packing This technique ensures that a large number of seedlings can be raised in minimum space under optimized and controlled conditions. The seeds or cuttings are planted in plastic bags filled with a specially prepared potting medium. The bags have holes in the bottom. The

5 potting medium has to be porous should also have all the plant nutrients. Ideally, compost, is used as media. 5.2 Location: The business of healthy seedling can be initiated in Sindh, Punjab, Balochistan, Khyber Pakhtunkhwa and Gigit Baltistan, whereas the technology of early and late seedlings of cucurbits can be successfully carried in central and Northern Punjab, Balochistan, Khyber Pakhtunkhwa, Gigit Baltistan and Azad Jammu & Kashmir.

5.3 Product: The crops targeted for the plant nursery include the following:

Table 1 Crops targeted for the plant nursery

Structures Summer Rainy season Winter (November- February) (June –July) (August - October)

Multipot Tomato, chili, pepper, Cauiflower,tomato, chili, Cauliflower, cabbage, trays brinjal pepper, brinjal broccoli, lettuce Polythene Cucurbits including Cucurbits including Off season vegetable bags/glass gourds, pumpkin, gourds, pumpkin, nursery including vegetable marrow Luffa, vegetable marrow Luffa, tomato, cucumber, melons etc. melons etc. pepper etc. Beds Onion

The exact choice may vary depending on the situation. Viability of nurseries depends on market condition

5.4 Target Market: Following are some of the areas which could be identified as major existing market of vegetable nursery; I. Kitchen gardeners II. Farms in peri urban areas III. Vegetable growers

5.5 Employment Generation: The proposed project will provide direct employment to four individuals. Financial analysis shows the profitability of proposed business within first year of its operation.

6 6 CRITICAL FACTORS The commercial viability of the proposed project depends on the following factors:

 Any person who is planning to adopt this technology should have some practical knowledge about nursery  Use of high quality hybrid/recommended varieties seeds.  Having and maintaining fertility of compost.  Cost efficiency through better management.  Timely control of pests, diseases and exercise of preventive measures.  Maintenance & control of internal temperature & humidity in the tunnel.  Timely irrigation and fertilization.  Farm is required to maintain the record of production and management practices for successful marketing and traceability.  Farm should have strong market linkages for effective disposal of produce.

7 INSTALLED AND OPERATIONAL CAPACITY FOR VEGETABLE NURSERY RAISING This pre-feasibility suggests a farm operation on 0.5 acres of land with following capacity

Table 2 Capacity of Farm operation on 0.5 acres of land

Seedlings Quantity Cucurbit 50,000 Tomato, chili (Summer) 50,000 Cauliflower etc. (Winter) 50,000 Onion in open areas 2,000,000 Off season seedlings 60,000

8 GEOGRAPHICAL POTENTIAL FOR INVESTMENT This technique ensures that a large number of seedlings can be raised in minimum space under optimized and controlled conditions. Poly tunnels used for protection against frost and used for nursery raising of summer vegetables (November to February) and similar structure will be used for protection against heat during summer (June to August) for early cauliflower, cabbage etc.

8.1 Potential Target Markets The market for seedlings and planting material produced includes kitchen gardeners, farmers of peri urban area and vegetable growers. The vegetable nursery project will be based on the demand for the selected crops to be produced by end users. In addition to local households the proposed vegetable nursery will include a marketing programme to promote sales of seedlings and planting materials to farmers in the project area. The marketing plan will include the development of a sales brochure and flyers describing the supply and price lists of planting material by the nursery. Other elements in the marketing programme will include limited print media advertising, sales calls, and public relations. 7 9 PRODUCTION PROCESS FLOW Possible utilization of land is given in Table: Table 3 Utilization of land

Seedling Jan. Feb. March April May June July Aug. Sep. Oct. Nov. Dec. Plan Summer **** +++ ++++= ++++ +++ +++ July +++ +++ +++ Winter +++ +++ +++ +++ Off season +++ +++ +++ +++

10 Project Cost and Benefit Summary A detailed financial model has been developed to analyze the commercial viability of vegetable nursery raising under the Prime Minister’s Small Business Loan Scheme. Various cost and revenue related assumptions, along with results of the analysis, are outlined in this section. 10.1 Project Economics The following table shows internal rates of return and payback period.

Table 4 Project Economics

Description Details Net Present Value (NPV) Rs. 3662745 Benefits Cost Ratio (BCR) 1.35 Internal Rate of Return (IRR) 29% Payback Period (years) 3.49

Factors that influence the profitability of nursery management, quality of inputs and environmental factors.

a. Project Cost

Following requirements have been identified for operations of the proposed business.

Table 5 Total Project Cost Capital Investment Amount (rupees) Capital Cost (one time investment) 440,000 Pre-Operating Cost Initial Working Capital 15,28,500 Total 1,968,500

b. Space Requirement Table 6 Space requirement and its cost Space Requirement Cost Rs./ Uni No./Quantity Area Total Cost

8 (Sq. ft.) (Rs.) Store (120 sq ft) 100000 1 120 100,000 Tunnel structure 240000 1 570 240,000 Open area for nursery raising ------0.5 acres 15,000 Capital Cost 355000 c. Machinery and Equipments

Table 7 List of Machinery& Equipments and its cost Machinery No./Quantity Unit Price Total Cost (Rs.) (Rs.) Spray pump 1 10000 10000 Autoclave/Sterlization unit 1 5000 5000 Pipe (ft) 200 20 4000 Water tank (300 gallon) 1 10000 10000 Tools for nursery 10 500 5000 Sieve etc. 1 1000 1000 Total Cost 35000

d. Furniture and Fixture

Following table provides list of Furniture and Fixture required for nursery project.

Table 8 List of Furniture & Fixture and its cost Description Quantity Unit Price (Nos) Furniture and Fixture Lump sump 50000 50,000 Total 50,000

e. Operational and Maintenance cost Following table provides list of Consumable Requirement for Inland Fish Farm.

Table 9 Operational & Maintenance cost Description Nos. Unit Total Price Farm Yard manure (Trolley) 5 2000 10000 Agric. Waste (Trolley) 5 500 2500 Approximately Seed for all vegetables 1 200000 200000 Pesticides/Fertilizers 2 14000 28000 Multipot trays 2000 100 200000 Poly glass/tubes 70000 2 140000 Plastic sheet 50000 1 50000 Shading net 60000 1 60000 Utilities (Electricity etc.) 12 8000 96000 Land Rent 50000 Other 20000

9 Total 856,500

f. Human Resource Requirement The table below provides details of human resource required to manage basic fish farm. The staff salaries are estimated according to the market trends. However, these requirements and pay scales may vary area to area.

Table 10 Human Resource Requirement its cost

Description No. of Employees Salary/person/ month Total salary per year Field Manager 1 20000 240000 Field 4 10800 432000 man(Permanent) Total 672000

g. Project Financing Following table provides details of the equity required and variables related to bank loan;

Table 11 Project financing

Description Details Total Equity (10%) Rs. 196,850 Bank loan (90%) Rs.1,771,650 Mark up to borrower (per annum) 8% Tenure of Loan (Years) 8% Grace Period (years) 1

h. Revenue Generation Table 12 Revenue of the Project

First Time Product Unit Sales Price (Rs./Unit) Revenue (Rs) Cucurbit 50,000 10 500000 Tomato, chili (Summer) 50,000 5 250000 Cauliflower etc. (Winter) 50,000 5 250000 Onion in open areas 2,000,000 0.2 400000 Off season seedlings 60,000 10 600000 Total Sales Revenue 2,000,000

Table 13 Key Assumption

Particulars Assumption Sales Price Growth Rate 8% per year Increase in cost of raw material 5% per year Increase in utilities 5% per year Increase in land rent 10% per year Debt/Equity Ratio 90:10 Loan Period 8 years Grace Period 1 year 10 Loan Installments Monthly Financial charges (interest rate) 8%

Concerned Scientist

Dr. Ghulam Jellani,

PSO/ P.L (Vegetable)

Programme on Vegetable Crop

Horticulture Research Institute

National Agricultural Research Centre

Park Road, Islamabad

Tel: +92-51 9255061, +92-51 9255012

Fax: +92-51 9255034

11 11 Annex Income Statement

Year Year Year Year Year Year Year Year Year Year 1 2 3 4 5 6 7 8 9 10 Revenues 2,000,000 2,160,000 2,332,800 2,519,424 2,720,978 2,938,656 3,173,749 3,427,649 3,701,860 3,998,009 Wages (Direct labour) 672,000 705,600 740,880 777,924 816,820 857,661 900,544 945,571 992,850 1,042,493 Cost of Seed 200,000 210,000 220,500 231,525 243,101 255,256 268,019 281,420 295,491 310,266 Multipot Trays 200,000 210,000 220,500 231,525 243,101 255,256 268,019 281,420 295,491 310,266 Farm Yard manure (Trolley) 10,000 10,500 11,025 11,576 12,155 12,763 13,401 14,071 14,775 15,513 Agric. Waste (Trolley) 2,500 2,625 2,756 2,894 3,039 3,191 3,350 3,518 3,694 3,878 Pesticides/Fertilizers 28,000 29,400 30,870 32,414 34,034 35,736 37,523 39,399 41,369 43,437 Plastic sheet 50,000 52,500 55,125 57,881 60,775 63,814 67,005 70,355 73,873 77,566 Shading net 60,000 63,000 66,150 69,458 72,930 76,577 80,406 84,426 88,647 93,080 Polyglass Tubes 140,000 147,000 154,350 162,068 170,171 178,679 187,613 196,994 206,844 217,186 Cost of Goods Sold 1,362,500 1,430,625 1,502,156 1,577,264 1,656,127 1,738,934 1,825,880 1,917,174 2,013,033 2,113,685 Gross Profit 637,500 729,375 830,644 942,160 1,064,851 1,199,723 1,347,868 1,510,474 1,688,827 1,884,325 Rent 50,000 55,000 60,500 66,550 73,205 80,526 88,578 97,436 107,179 117,897 Utilities 96,000 105,600 116,160 127,776 140,554 154,609 170,070 187,077 205,785 226,363 Depreciation 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 Others 20,000 21,000 22,050 23,153 24,310 25,526 26,802 28,142 29,549 31,027 Interest on Loan 141,732 141,732 125,848 108,693 90,165 70,156 48,545 25,206 - - Sub - Total 350,232 365,832 367,058 368,671 370,734 373,316 376,495 380,361 385,013 417,787 Operating Income 287,268 363,543 463,586 573,489 694,117 826,407 971,373 1,130,113 1,303,814 1,466,538 Tax - - 6,359 17,349 29,412 46,461 68,206 92,017 118,072 142,480 Net Income 287,268 363,543 457,227 556,140 664,705 779,946 903,167 1,038,096 1,185,742 1,324,057

12 CASHFLOW STATEMENT

Year Year Year Year Year Year Year Year Year Year Year 0 1 2 3 4 5 6 7 8 9 10 Net Income 287,268 363,543 457,227 556,140 664,705 779,946 903,167 1,038,096 1,185,742 1,324,057 Depreciation 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 42,500 Net Inventory (690,500) (75,955) (83,551) (91,906) (101,096) (111,206) (122,326) (134,559) (148,015) (162,816) 1,790,979 Tax - - 6,359 17,349 29,412 46,461 68,206 92,017 118,072 142,480 Cash from Operations (690,500) 211,313 322,493 414,180 514,893 625,411 746,580 879,314 1,024,598 1,183,498 3,300,017 Inflow / Outflow (A:G) Interest on Loan 141,732 141,732 125,848 108,693 90,165 70,156 48,545 25,206 - - Net Cash from Operations (690,500) 69,581 180,761 288,333 406,200 535,245 676,425 830,769 999,392 1,183,498 3,300,017 Inflow / Outflow (I - J) Owners Equity 196,850 Principal Amount - 198,553 214,437 231,592 250,120 270,129 291,740 315,079 - - Long Term Loan 1,771,650 Cash from Financing 1,968,500 - 198,553 214,437 231,592 250,120 270,129 291,740 315,079 - - Inflow / Outflow (L+M) Cash from Investment Store (100,000) Furniture and Fixture (50,000) Tunnel Structure (240,000) Water Tank (10,000) Land Rent (01 acres) (50,000) Machinery and Equipment (25,000) Net Cash from Investing Activities (475,000) ------Net Cash 803,000 69,581 379,314 502,770 637,792 785,365 946,554 1,122,508 1,314,471 1,183,498 3,300,017 Inflow / Outflow (K+N+Q) Opening Balance - 803,000 872,581 1,251,895 1,754,665 2,392,457 3,177,822 4,124,376 5,246,884 6,561,355 7,744,853 Closing Balance 803,000 872,581 1,251,895 1,754,665 2,392,457 3,177,822 4,124,376 5,246,884 6,561,355 7,744,853 11,044,870