DETAILED FEASIBILITY REPORT Animal Feed Unit in conformity with The Royal Government of Bhutan’s Vision of Achieving Economic Self-Reliance June 2015 Ministry of Economic Affairs Royal Government of Bhutan DETAILED FEASIBILITY REPORT - Animal Feed Unit CONTENT Section Topic Page Abbreviations and Definitions 4 1.0 Executive Summary 6 2.0 Justification of the project 8 2.1 The need for the project 8 2.2 Competition Analysis 11 3.0 Market Analysis 12 3.1 Structure of the industry 12 3.2 Demand vs. Supply 13 3.3 Pricing & Marketing Strategies 13 3.4 Technological changes that could impact costing 15 3.5 Competitiveness of the project 15 3.6 Special attributes desired by target customers 15 Terms & conditions and product specifications desired by target 3.7 15 customers 3.8 Packaging & Transportation 16 3.9 Assessment of Comparative Advantage 17 3.10 Potential for Marketing Collaboration 17 4.0 Resource 18 4.1 Sources of Inputs Including Water 18 4.2 Comparative Analysis of Critical Inputs 18 4.3 Sources of Raw Material 18 4.4 Availability of Manpower &Skills 22 4.5 Need for Skill Development 22 5.0 The Plant 23 5.1 Choice of Technology 23 5.2 Source 24 5.3 Rate of Consumption of Power, Fuel, Utilities &Consumables 26 5.4 Raw Material Consumption 26 5.5 Manpower Requirement and Organization Chart 27 5.6 Specification of Product and Byproduct 27 5.7 Extent of Technical Assistance NeededIncluding Training 28 6.0 Plant Location & Infrastructure 29 6.1 Raw Material Availability 29 2 DETAILED FEASIBILITY REPORT - Animal Feed Unit 6.2 Availability of Electricity 29 6.3 Topography, Hydrology &Seismology Data Requirement 30 6.4 Availability of Land 31 6.5 Availability of Transportation Facilities 31 6.6 Availability of Ancillary Facilities 31 6.7 Availability of Housing, Schooling and Hospital Facilities 31 6.8 Communication Facilities 33 6.9 Presence of Approach Road 33 6.10 Factory layout plan 33 7.0 Environmental Aspects 34 8.0 Project Implementation Schedule 41 9.0 Cost Presentation 43 9.1 Capital Costs 44 9.2 Operating Costs 46 10.0 Financial Analysis 51 10.1 Profitability 51 10.2 Calculation of Interest on Term Loan 52 10.3 DSCR Calculation 52 10.4 Break Even Point 53 10.5 NPR & RI 54 10.6 Cash Flow Statement 54 Reference 56 3 DETAILED FEASIBILITY REPORT - Animal Feed Unit ABBREVIATIONS AND DEFINITIONS BEP Break Even Point BHU Basic Health Units BTL Bhutan Telecom Limited CP Crude Protein CUSP Caltech-USGS Seismic Processing DCP Digestible Crude Protein DE Digestible Energy DSCR Debt Service Coverage Ratio EA Environment Assessment EI Environmental Information EMP Environment Management Plan EPI Expanded Program on Immunization ETP Effluent Treatment Plant IMNCI Integrated Management of Neonatal and Childhood Illness IRR Internal Rate of Return ISPs Internet Service Providers MT Metric Ton NACP National HIV/AIDS & STIs Control Program NEC National Environment Commission NPV Net Present Value NTCP National Tuberculosis Control Program OHS Occupational Health & Safety ORC Out Reach Clinics 4 DETAILED FEASIBILITY REPORT - Animal Feed Unit RH Reproductive Health RPM Revolutions Per Minute RWSS Rural Water Supply and Sanitation Program SPM Suspended Particulate Matter TICL Tashi Info Comm Limited TSPM Total Suspended Particulate Matter TSS Total Suspended Solids VDCP Vector Borne Disease Control Program VHW Village Health Workers Program WFP World Food Program 5 DETAILED FEASIBILITY REPORT - Animal Feed Unit 1.0 EXECUTIVE SUMMARY This report is a detailed feasibility study on setting up an animal feed manufacturing unit in Bhutan conducted by the Department of Industry under the Ministry of Economic Affairs, Royal Government of Bhutan. It is proposed that the unit will have a capacity of processing 16,000 tons of animal feed per annum. With the increased demand for livestock products primarily for domestic consumption, farmers realise the importance of ensuring that their cattle stays healthy and productive during their life time. This has necessitated higher demand for balanced feed. The report presents in detail the justification of the project, market analysis of the service, resources required, technology used in the plant, plant location, environmental aspects, implementation of the project, cost presenta- tion and financial analysis. (i) Justification of the Project:About 90 percent [Source: Investment Opportunity in Bhutan_2006] of the rural households own livestock, which forms an integral part of the Bhutanese farming system. Yet there is a drastic shortage of fodder during winter months and there is a demand for cattle feed (ii) Market Analysis: Currently there is only one large animal feed manufacturing unit in Bhutan and it is difficult for a single manufacturer to meet the total demand of cattle feed. So, there is a scope for new entrants. (iii) Resources required: Some of the raw materials like maize, wheat, limestone are readily available within the country and the rest needs to be imported. Apart from this the unit requires electricity, water and manpower which are also available in Bhutan. (iv) Technology required: A mechanized plant using state of the art technology has been proposed for this purpose. The plant has the capacity to process not only cattle feed but fish feed and poultry feed as well. (v) Plant Location: Considering the availability of raw materials and other infrastructure Phuentsholing has been proposed as the ideal location for the plant. (vi) Environmental Aspects: The production of animal feed may cause air and water pollution but this may be reduced up to a great extent by by following the recommended measures. (vii) Implementation of the Project: The implementation of the project will take more than 12 months including pre-project activities. (viii) Cost Presentation and Financial Analysis: 6 DETAILED FEASIBILITY REPORT - Animal Feed Unit Table 1: Project Summary Plant Capacity: 50 Tons per day (16,000 Tons per annum) No. of Shift: One ( 8 hours per shift ) per day Working Days in Year: 320 D.S.C.R. : 1.97 B.E.P. : 19.18% IRR : 22.97 NPV : Nu. 12.29 millions Internal Rate of Return of the project is 22.97%, which is much higher than the bank rate of 13%.Hence the project is financially viable. The NPV of the project is positive (Nu. 12.29 millions) at a discount factor of 13% during the first 10 years of operation. This implies that the project is financially viable. 7 DETAILED FEASIBILITY REPORT - Animal Feed Unit 2.0 JUSTIFICATION OF THE PROJECT 2.1 The Need for the Project General Scenario: About 90 percent[Source: Investment Opportunity in Bhutan_2006] of rural households in Bhutan own livestock, which forms an integral part of the Bhutanese farming system, providing support to agri- culture through draught power and the providing manure. Livestock also provides increasingly greater value by generating cash incomes from butter, cheese and meat. Cattle, yak, buffalo, sheep & goats are the major livestock owned and reared by farmers. Accordingly, the Royal Government is preparing a Livestock Breeding Policy in every Dzongkhag. Projects have already been identified for Dairy Development. In Bhutan, a major source of food for livestock is fodder. Main fodder resources in summer are: Serial Number Fodder Resource for Large Ruminants 1 Forest Grazing 2 Grazing Crop Land/Fallow Land 3 Crop Residues 4 Improved Pasture 5 Native Pasture 6 Hay and Silage 7 Fodder Species grown on cropland 8 Fodder trees Lack of animal feed during the winter months is an acute problem for almost all Bhutanese cattle farmers. Cattle Population The table below shows the cattle population in Bhutan as per figures released by Department of Livestock, Ministry of Agriculture and Forests, Thimphu, Bhutan for 2013 Table 2: Cattle Population_2013 Dzongkhag Cattle Bumthang 11,023 Chukha 21,633 Dagana 16,619 Gasa 804 Haa 97,02 Lhuentse 14,133 Mongar 25,316 Paro 13,052 8 DETAILED FEASIBILITY REPORT - Animal Feed Unit Pemagatshel 7,825 Punakha 11,042 Samdrup Jongkhar 18,139 Samtse 33,411 Sarpang 19,813 Thimpu 3,908 Trashigang 26,908 Trashiyangtse 10,422 Trongsa 11,093 Tsirang 10,912 Wangdue 25,534 Zhemgang 11,237 Total 302,526 Benefits of Commercially Manufactured Feed The primary purpose of commercial feeds is to provide concentrated sources of necessary nutrients for livestock. These nutrients include not only macro-nutrients of energy and protein but also important specific nutrients such as amino acids, fatty acids, enzymes, vitamins, minerals and others. With the increased demand for livestock products for domestic consumption as well as export, farmers realise the importance of maintaining the health of their animals with proper feeding and management. The proportion of crossbred animals increased over the years. This has necessitated higher demand for balanced feed. The feed supply could not keep pace with the growth in various species of cattle. To meet the growing demand of processed and complete feeds for different class of animals there is a good scope for setting up feed processing plants of different capacities for production of various quality feeds in Bhutan. Average Nutritive Values of common feed ingredients (Dry Matter basis) Table 3: Average Nutritive Values of Common Feed Ingredients CP DCP TDN DE ME Common No. Botanical Name Name (%) (%) (%) MCal MCal A Cereal Grains 1 Avena Sativa Oats, Jai 10 7.5 80 3.5 2.8 2 Eleusine coracana Finger millet 10 7.0 70 3.1 2.5 3 Hordeum vulgare Barley, Jav 11 7.7 85 3.7 3.1 Rice, Cha- 4 Oryza sativa 8 6.0 85 3.7 3.2 wal 5 Panicum millaceum Proso millet 6 4.0 70 3.1 2.5 9 DETAILED FEASIBILITY REPORT - Animal Feed Unit Pennisetum ty- 6 Pearl millet 12 6.0 65 2.8 2.3 phoides sorghum, 7 Sorghum bicolor 12 6.6 85 3.7 3.2 Jowar 8 Triticum aestivum Wheat 13 9.0 87 3.8 3.4 Maize, 9 Zea mays 10 7.0 85 3.7 3.3 Makka B Leguminous Seeds 1 Cajanus cajan Pigeonpea 20 14.5 75 3.3 2.7 Chickpea, 2 Cicer arietinum 20 14.0 85 3.7 3.2 Gram Cyamopsis 3 Cluster bean 30 22.5 79 3.5 2.8 tetragonolobo Hyacinth 4 Dolichos lablab 17 10.2 70 3.1 2.5 bean 5 Gossypium spp.