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Pre - Feasibility Study
MUSHROOM PRODUCTION AND
PROCESSING
PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD
MINISTRY OF NAT...
Contents
Contents............................................................................................................
List of Table
Table 1. Project Economics ……………………………………………………………...............5
Table 2. Project Financing………………………………………...
1. DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on...
2. PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs
i...
Market for mushrooms is growing rapidly in Pakistan because of their nice
aroma, nutritious values, subtle flavor and spec...
6. CRITICAL FACTOR
Mushroom production is planned under natural conditions. One important factor is
prevailing climatic co...
9. PROJECT COST AND BENEFIT SUMMARY
A detailed financial model has been developed to analyze the commercial viability of
m...
Returns on the scheme and its profitability are highly dependent on quality of
mushroom, suitable location, good farming p...
Following table provides list of machinery and equipment required for production and
packaging of mushroom.
7
Table 5. List of Machinery and Equipment
Description Quantity Cost Rs /unit
Total
Rs
Spray pump 1 6000 6000
Humidity senso...
Table 8. Human Resource Requirement
Description No. of Employees Salary/person/
month
Total salary per year
Labors 2 10000...
ANNEXURE 1
INCOME STATEMENT
Year 1 2 3 4 5 6 7 8 9 10
2,400,000 2,640,000 2,904,000 3,194,400 3,513,840 3,865,224 4,251,74...
CASH FLOW STATEMENT
Year 0 1 2 3 4 5 6 7 8 9
Net Income
936,656 1,122,206
1,304,01
8
1,497,65
1
1,708,97
9
1,943,581 2,201...
- 732,500 1,526,392
2,777,14
6
4,264,28
2
6,013,26
7 8,052,177
10,411,96
0
13,126,72
4 16,234,052
Closing Balance 732,500
...
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5. Mushroom ( feasibilty mushroom revised-17_feb) A Series of Presention By Mr Allah Dad Khan Master Trainer in Mushroom Technology Former DG Agriculture Extension KPK , Visiting Professor the University of Agriculture Peshawar Pakistan

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A Series of Presention By Mr Allah Dad Khan Master Trainer in Mushroom Technology
Former DG Agriculture Extension KPK , Visiting Professor the University of Agriculture Peshawar Pakistan

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5. Mushroom ( feasibilty mushroom revised-17_feb) A Series of Presention By Mr Allah Dad Khan Master Trainer in Mushroom Technology Former DG Agriculture Extension KPK , Visiting Professor the University of Agriculture Peshawar Pakistan

  1. 1. Pre - Feasibility Study MUSHROOM PRODUCTION AND PROCESSING PAKISTAN AGRICULTURE RESEARCH COUNCIL ISLAMABAD MINISTRY OF NATIONAL FOOD SECURITY AND RESEARCH Government of Pakistan www.parc.gov.pk January 2014 1 1st Draft
  2. 2. Contents Contents..................................................................................................................................................i 9.4 Space Requirement .........................................................................................................................6 10.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS.........................................................9 i
  3. 3. List of Table Table 1. Project Economics ……………………………………………………………...............5 Table 2. Project Financing……………………………………………………………………….6 Table 3. Capital Investment for the Project……………………………………………………....6 Table 4. Land Requirement………………………………………………………………………6 Table 5. List of machinery and equipment……………………………………………………….7 Table 6. Cost of Raw Material……………………………………………………………………7 Table 7. Revenue of the Project………………………………………………………...................7 Table 8. Human Resource Requirement…………………………………………………………..8 List of Annexure Annexure 1. Income statement…………………………………………………………………11 Annexure 2. Cash flow statement……………………………………………………………....12 ii
  4. 4. 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. 1
  5. 5. 2. PURPOSE OF THE DOCUMENT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document covers various aspects of project concept development, start-up, and production, marketing, finance and business management. The document also provides sectoral information, brief on government policies and international scenario, which have some bearing on the project itself. The purpose of this document is to facilitate potential investors in Mushroom Production and Processing by providing them a holistic as well as a micro view of business with the hope that such information as provided herein will help the potential investors in crucial investment decisions. 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 thumbs of rules; best practices developed by existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it’s successful management. Mushroom production could give employee and business investment opportunities for youth and mid-age people in rural area. Mushroom production can be managed by people who have lower level education in rural area. They may need short time training on mushroom production. 3. INTRODUCTION TO SCHEME Prime Minister’s Youth Business Loan Program, 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 SUMMERY Mushrooms are gradually becoming popular as they are rich in protein, minerals and vitamins and very low n fat and sugar. Fresh mushrooms have very limited life and hence they need to be consumed within few hours. But processing and canning increases their shelf life to few months. It is also known to have medicinal values and certain varieties of mushrooms can inhibit growth of cancerous tumor. The productivity of mushroom is higher than any crop. Food, nutritional and medicinal values apart, mushroom growing can be efficient means of waste disposal (agricultural, industrial and forest wastes), since it can use the wastes as medium of growth. Hence, it could be considered as eco-friendly. In Pakistan only three types, namely, button, oyster and straw mushrooms are commercially cultivated. Further, mushroom growing is highly labor intensive and requirement of land is comparatively low. 2
  6. 6. Market for mushrooms is growing rapidly in Pakistan because of their nice aroma, nutritious values, subtle flavor and special taste. Many exotic food preparations like soup, vegetables, pickles etc. are made from them. They are also used for garnishing, to prepare many varieties of gravy and for stuffing several food preparations. But they are still considered as up-market product and their consumption is limited to urban and semi urban areas. Fresh mushrooms have very limited shelf life but processed and canned mushrooms have fairly long shelf life and can be sold even at far off places, Star hotels and exclusive restaurants. The product can be sold even through departmental stores, super markets etc. In Pakistan the biggest mushroom supplier markets are Islamabad, Lahore and Karachi. Total cost estimate is Rs.1.9 million, with fixed investment of Rs. 0.6 million and working capital amounting to Rs. 0.9 million. Given the cost assumptions, Net Present value (NPV) Rs.1, 1756,876, Internal Rate of Return (IRR) 66%, Benefit Cost Ratio (BCR) 2.4 and payback period are 1.5 years. 5. BRIEF DESCRIPTION OF PROJECT AND PRODUCT Following key parameters must be addressed as per pre-feasibility study: • Techniques: mushroom is indoor cultivated crop because it has no chlorophyll and there is no photosynthesis. It is grown on agricultural and industrial wastes with the little amendments of gypsum and limes. • Location: The business can be initiated in cold areas especially northern hilly areas of Pakistan like Kashmir Gilgit Swat Kaghan and Muree/ galiyat. Temperature range should be between 15-25 o C. • Product: mushroom consumption is increasing in Pakistan due to changing food habits and special preferences for high quality protein. Mushrooms are growing rapidly in Pakistan because of their nice aroma, nutritious values, subtle flavour and special taste. Many exotic food preparations like soup, vegetables, pickles etc. are made from them. They are also used for garnishing, to prepare many varieties of gravy and for stuffing several food preparations. • Target Market: In addition to major cities, such as Karachi, Lahore and Islamabad, there is an enormous export potential for Middle Eastern countries. • Employment Generation: The proposed project will provide direct employment to three individuals. Financial analysis shows the profitability of proposed business within first year of its operation. 3
  7. 7. 6. CRITICAL FACTOR Mushroom production is planned under natural conditions. One important factor is prevailing climatic condition (cold climate) in the area where the mushroom farm will be established economically. The different mushroom that can be cultivated artificially have different temperature requirement for mycelal growing and fruiting. To obtain the good quality mushroom light, temperature, and humidity must be carefully controlled. Another critical factor is the location of the mushroom farm, one should consider the distance between the farm and the place where the substrate will be obtained, the greater the distance the higher will be the cost of transporting and hence higher the cost of production. Success of mushroom farming depends on the availability of markets. Skilled workers are required for post harvest handling, drying and packing of the mushroom prior to market. 7. POTENTIAL TARGET MARKETS The marketing of mushroom follows the traditional distribution channel, through middlemen or wholesalers at farm who identifies potential buyers and negotiate price, or directly to retailers in urban markets. The time and cost spent in transportation, from farm to the retail shop, varies from area to area. The key factors in marketing are availability of current market information, quality of mushroom and supply & demand which will determine the selling price. The overall production cycle for the mushroom farming comprises of 5 months under natural condition. Where as an additional crop of 5 month can be obtained under artificially controlled conditions. Fresh mushroom is marketed in the super store of Karachi, Lahore and Islamabad. The surplus produce is dried and canned which is marketed to hotels, restaurants and bakers. The potential targeted markets for the mushroom are the cold areas especially northern hilly areas of Pakistan like Kashmir Gilgit Swat Kaghan and Muree/ galiyat. 8. PRODUCTION PROCESS FLOW The important channels of mushroom marketing in the area are: (1) Mushroom grower Wholesaler/Commission agent → Retailer→ Consumer, (2) Mushroom grower →Wholesaler/Commission agent → Consumer, (3) Mushroom grower→ Retailer→ Consumer, and (4) Mushroom grower→ Consumer. Following production process is generally followed: 4
  8. 8. 9. PROJECT COST AND BENEFIT SUMMARY A detailed financial model has been developed to analyze the commercial viability of mushroom Production and processing under the ‘Prime Minister’s Youth Business Loan’ program. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. 9.1 Project Economics All the figures in this financial model have been calculated for mushroom production of 400 sq ft room with an annual production of 200 tins of mushroom per day. The following table shows internal rate of return of mushroom. Table 1. Project Economics Description Detail Internal Rate of Return (IRR) 66% Pay back period (years) 1.5 Net present value (NPV) 1,17568,76 Benefit Cost Ratio (BCR) 2.4 5 Mushroom production and processing Spawn production Growing Mushroom Packaging Labeling Transporting Marketing Compose preparation
  9. 9. Returns on the scheme and its profitability are highly dependent on quality of mushroom, suitable location, good farming practices and availability of trained staff. The project will not be able to cover the potential demand of consumers and recover payments, if these factors are not efficiently managed and will also lead to increased operating cost. Similarly, good quality spawn and choosing best suitable location will yield more profit in this business. 9.2 Project Financing Following table provides details of the equity required and variables related to bank loan; Table 2. Project financing Description Detail Total equity (10%) Rs. 195620 Bank loan (90%) Rs. 1760850 Mark up to the borrowers (%/annum) 8% Tenure of loan (year) 08 Grace period (year) 01 9.3 Project Cost Following requirements have been identified for operations of the proposed business. Table 3. Capital Investment for the Project Capital investment Amount(Rs.) Racks 450000 Vehicale 50000 Mechienary and equipment 56100 Total capital cost 556100 Initial working capital 735500 Total project cost 1291600 9.4 Space Requirement Basically mushroom production can be done vertically. A space of 3000 sq/ft area is required for mushroom shed. Its production is done by making shelves in the room. The shed space will be taken on the rental/lease basis. The rent is paid in advance for the one year. The rent of the room varies area to area and location to location. Table 4: Land Requirement Area Required Area(Sq.ft) Monthly Rent Charges(Rs.) Yearly Rent(Rs.) Mushroom farm 3000 2,500 30000 Total Rent 30000 9.5 Machinery and Equipment 6
  10. 10. Following table provides list of machinery and equipment required for production and packaging of mushroom. 7
  11. 11. Table 5. List of Machinery and Equipment Description Quantity Cost Rs /unit Total Rs Spray pump 1 6000 6000 Humidity sensor 1 3000 3000 Temperature sensor 1 400 400 Electric paking gun 1 1000 1000 Tool kit 1 2000 2000 Weight machine 2 3500 7000 Total - - 19400 9.6 Raw Material Requirements Table 6: Cost of Raw Material Description Unit Quantity Rate Rs. Total Wheat straw Ton 40 7000 280000 Poultry manure Ton 20 1800 36000 Spawn Kg 400 600 240000 Gypsum Kg 1200 8 9600 Urea Bags 2 1800 3600 Polythin bag Kg 200 220 44000 Rubber band Kg 3 600 1800 Peet moss Kg 10 8000 80000 Thermopol paking No 3000 2 6000 Glint sheet No 10 500 5000 Sticker - 30000 0.5 15000 Lime Bags 15 300 4500 Pesticide Liter 10 1000 10000 Total (Rs) - - 735500 9.7 Revenue Generation Total expected mushroom crop on 3000sqft farm would be 6 ton that is 6000kg approximately. The marketing price of the mushroom is 400 Rs per Kg which is the minimum rate. The total revenue of the expected crop would be 2400000 Rs on first year. Table 7. Revenue of the Project Expected Mushroom crop Expected crop price Sale income Year 1 6000 kg 400 2400000 9.8 Human Resource Requirement The table below provides details of human resource required to manage basic mushroom farm. The staff salaries are estimated according to the market trends. However, these requirements and pay scales may vary area to area. 8
  12. 12. Table 8. Human Resource Requirement Description No. of Employees Salary/person/ month Total salary per year Labors 2 10000 20,000 Sales man 1 10000 10,000 Total 30,000 10. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS Dr. Sheikh Muhammad Iqbal PATCO Manager Ph: 051-8443211 E-mail. Iqbalsh65@hotmail.com 9
  13. 13. ANNEXURE 1 INCOME STATEMENT Year 1 2 3 4 5 6 7 8 9 10 2,400,000 2,640,000 2,904,000 3,194,400 3,513,840 3,865,224 4,251,746 4,676,921 5,144,613 5,659,074 lime 4,500 4,725 4,961 5,209 5,470 5,743 6,030 6,332 6,649 6,981 Sticker 15,000 15,750 16,538 17,364 18,233 19,144 20,101 21,107 22,162 23,270 Pesticide 10,000 10,500 11,025 11,576 12,155 12,763 13,401 14,071 14,775 15,513 glint sheet 5,000 5,250 5,513 5,788 6,078 6,381 6,700 7,036 7,387 7,757 Labour 360,000 378,000 396,900 416,745 437,582 459,461 482,434 506,556 531,884 558,478 chaff wheat straw 280,000 294,000 308,700 324,135 340,342 357,359 375,227 393,988 413,688 434,372 poultry manure 36,000 37,800 39,690 41,675 43,758 45,946 48,243 50,656 53,188 55,848 spawn 240,000 252,000 264,600 277,830 291,722 306,308 321,623 337,704 354,589 372,319 Gypsum 9,600 10,080 10,584 11,113 11,669 12,252 12,865 13,508 14,184 14,893 polythin bags 44,000 46,200 48,510 50,936 53,482 56,156 58,964 61,912 65,008 68,258 rubber band 1,800 1,890 1,985 2,084 2,188 2,297 2,412 2,533 2,659 2,792 peet moss 80,000 84,000 88,200 92,610 97,241 102,103 107,208 112,568 118,196 124,106 fresh paking thrmopol paking 6,000 6,300 6,615 6,946 7,293 7,658 8,041 8,443 8,865 9,308 Cost of Goods Sold 1,091,900 1,110,270 1,165,784 1,224,073 1,285,276 1,349,540 1,417,017 1,487,868 1,562,261 1,640,374 Gross Profit 1,308,100 1,529,730 1,738,217 1,970,327 2,228,564 2,515,684 2,834,729 3,189,053 3,582,352 4,018,700 Rent 30,000 33,000 36,300 39,930 43,923 48,315 53,147 58,462 64,308 70,738 Utilities 66,000 72,600 79,860 87,846 96,631 106,294 116,923 128,615 141,477 155,625 Depreciation 55,610 55,610 55,610 55,610 55,610 55,610 55,610 55,610 55,610 55,610 Interest on Loan 140,846 140,846 125,061 108,014 89,602 69,717 48,242 25,049 - - Sub - Total 292,456 302,056 296,831 291,400 285,766 279,936 273,922 267,736 261,395 281,973 Operating Income 1,015,644 1,227,674 1,441,385 1,678,928 1,942,798 2,235,747 2,560,807 2,921,317 3,320,957 3,736,727 Tax 78,988 105,467 137,367 181,277 233,819 292,166 359,279 449,071 548,629 652,202 Net Income 936,656 1,122,206 1,304,018 1,497,651 1,708,979 1,943,581 2,201,529 2,472,246 2,772,328 3,084,525 10
  14. 14. CASH FLOW STATEMENT Year 0 1 2 3 4 5 6 7 8 9 Net Income 936,656 1,122,206 1,304,01 8 1,497,65 1 1,708,97 9 1,943,581 2,201,529 2,472,246 2,772,328 Depreciation 55,610 55,610 55,610 55,610 55,610 55,610 55,610 55,610 Net Inventory (735,500) (80,905) (88,996) (97,895) (107,685) (118,453) (130,298) (143,328) (157,661) (173,427) Tax 78,988 105,467 137,367 181,277 233,819 292,166 359,279 449,071 548,629 Cash from Operations Inflow / Outflow (A:G) (735,500) 934,739 1,194,288 1,399,10 0 1,626,85 3 1,879,95 5 2,161,059 2,473,089 2,819,266 3,203,140 Interest on Loan 140,846 140,846 125,061 108,014 89,602 69,717 48,242 25,049 - Net Cash from Operations Inflow / Outflow (I - J) (735,500) 793,892 1,053,442 1,274,03 9 1,518,84 0 1,790,35 3 2,091,342 2,424,847 2,794,218 3,203,140 Owners Equity 195,620 Principal Amount - 197,312 213,097 230,145 248,557 268,441 289,917 313,110 - Long Term Loan 1,760,580 Cash from Financing Inflow / Outflow (L+M) 1,956,200 - 197,312 213,097 230,145 248,557 268,441 289,917 313,110 - Cash from Investment racks for mushroom with 4 shelve (450,000) plastic pipe (3,200) drumwith cover (5,000) rent for building for farm (30,000) Net Cash from Investing Activities (488,200) - - - - - - - - - Net Cash Inflow / Outflow (K+N+Q) 732,500 793,892 1,250,754 1,487,13 6 1,748,98 5 2,038,91 0 2,359,783 2,714,764 3,107,328 3,203,140 Opening Balance 11
  15. 15. - 732,500 1,526,392 2,777,14 6 4,264,28 2 6,013,26 7 8,052,177 10,411,96 0 13,126,72 4 16,234,052 Closing Balance 732,500 1,526,39 2 2,777,146 4,264,28 2 6,013,26 7 8,052,17 7 10,411,96 0 13,126,72 4 16,234,05 2 19,437,192 11. Key Assumption 12 Particulars Assumption Sales Price Growth Rate 5% per year Increase in cost of raw material 10% per year Increase in utilities 10% per year Debt/Equity Ratio 90:10 Building 15% Machinery 15% Loan Period 8 years Grace Period 1 year Loan installments Annually Financial charges (interest rate) 8%

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