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
Contents
1. DISCLAIMER 1
2. PURPOSE OF THE DOCUMENT 2
3. INTRODUCTION TO SCHEME 2
5. EXECUTIVE SUMMARY 2
6. BRIEF DESCRIPTION OF PROJECT 3
7. CRITICAL FACTORS 4
8. POTENTIAL TARGET MARKET 4
9. PRODUCTION PROCESS FLOW 4
10. PROJECT COST SUMMARY 5
11.1: Project Economics 5
11.2: Project Financing 6
11.3: Project Cost 6
11.4: Space Requirement 6
11.5: Machinery and Equipment 6
11.6: Raw Material Requirements 7
11.7: Revenue Generation 7
11.8: Human Resource Requirement 8
13. CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS 8
14. ANNEXURES 9
15: KEY ASSUMPTIONS 11
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
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 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.
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 oC.
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.
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:
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 "
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 "Yearly Rent(Rs.)"
" " "Charges(Rs.) " "
"Mushroom farm "3000 "2,500 "30000 "
"Total Rent " " "30000 "
9.5 Machinery and Equipment
Following table provides list of machinery and equipment required for
production and packaging of mushroom.
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.
Table 8. Human Resource Requirement
"Description "No. of Employees "Salary/person"Total salary per "
" " "/ month "year "
"Labors "2 "10000 "20,000 "
"Sales man "1 "10000 "10,000 "
"Total " " "30,000 "
CONTACTS – SUPPLIERS, EXPERTS / CONSULTANTS
Dr. Sheikh Muhammad Iqbal
PATCO Manager
Ph: 051-8443211
E-mail.
[email protected]
ANNEXURE 1
INCOME STATEMENT
" Year "1 "
"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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1st Draft
Mushroom production and processing
Spawn production
Growing Mushroom
Packaging
Labeling
Transporting
Marketing
Compose preparation