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. 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. Contents
Contents..................................................................................................................................................i
9.4 Space Requirement .........................................................................................................................6
10.CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS.........................................................9
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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
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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.
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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.
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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.
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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:
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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. 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. Following table provides list of machinery and equipment required for production and
packaging of mushroom.
7

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.
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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
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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. 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. - 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%