tunnel farming feasibility report financial management

Financial Management

Tunnel Farming Project Report

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FINANCIAL STUDY

OFF SEASON VEGETABLE PRODUCTION

(HIGH TUNNEL)

Presented to: Prof. Nauman Nazir




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Group Members

Serial # Name Reg. #

01 Umair Mohsin 05

02 Usman Zaka 08

03 Mohsin Sohail 09

04 Umair Saeed 10

05 Sadaqat Ali 11



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Contents Group Members .................................................................... i

Contents ............................................................................... ii

PURPOSE OF DOCUMENT .................................................... 1

EXECUTIVE SUMMARY ......................................................... 1

BRIEF DESCRIPTION OF PROJECT AND PRODUCT ................. 2

CRITICAL FACTORS ............................................................... 3

INSTALLED AND OPERATIONAL CAPACITY FOR OFF SEASON

VEGETABLE FARMING .......................................................... 3

GEOGRAPHICAL POTENTIAL FOR INVESTMENT ................... 4

POTENTIAL TARGET MARKETS ............................................. 4

PRODUCTION PROCESS FLOW ............................................. 4

PROJECT COST AND BENEFIT SUMMARY ............................. 5

11.1ProjectEconomics ..................................................................................................................... 6

11.2Project Financing ...................................................................................................................... 6

11.3 Project Cost ............................................................................................................................. 7

11.4 Space Requirement ................................................................................................................. 7

11.5Machinery and Equipment ...................................................................................................... 7

11.7Human Resource Requirement ................................................................................................ 8

11.8Revenue Generation ................................................................................................................ 8

KEY ASSUMPTION................................................................. 9

FINANCIAL ANALYSIS .......................................................... 10



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PURPOSE OF DOCUMENT The purpose of this document is to facilitate potential investors in Off Season

Vegetable Production-High tunnelby 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.

EXECUTIVE SUMMARY Growing out-of-season crops in controlled atmosphere inside polythene tunnel is called

Tunnel Farming. It was first introduced by William Fredrick 2600 years before. High

tunnels, also known as hoop houses, are relatively simple polyethylene-covered

unheated structures. It covered with one or two sheets of plastic and two layer offering

better insulation and consequently more cold protection. It gives maximum yield of

crops and makes easy soil preparation, picking and spraying due to its width and height.

It’s much suitable for tomatoes, cucumber and sweet pepper.

Vegetable Production under high tunnel is considered for Business in this project pre-

feasibility. This business is proposed to be located primarily in all temperate and sub

tropical areas of the country. All aspects of tunnel farming i.e. selection of suitable crop

for tunnel farming, nursery raising for off season crop, their nutritional requirement, all

crop management practices and different necessary measures for productivity

improvement has been studied at Vegetable Crops Research Programme, Horticultural

Research Institute (HRI),National Agricultural Research Centre (NARC), Islamabad.

After successful experimentation, this technology is declared technically feasible for



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commercial vegetable farming. The technology of tunnel farming is in the phase of

extension to the farmers. Farmers are already practicing this technology at their farms.

The tunnel farming can be successfully carried in Punjab, KhyberPakhtunkhwa and

some parts of Balochistan. The project can be started at an area of one acre with eight

tunnels of 30ft x 100 ft(3000 sq.ft) each per acre. Total cost estimate is Rs.1.542 million,

with fixed investment of Rs.0.685 million and working capital amounting to Rs.0.857

million. Given the cost assumptions, Net Present Value (NPV), Internal Rate of Return

(IRR), Benefit Cost Ratio (BCR) and payback period are Rs. 2,117,799,32%, 1.53 and

3.15 years respectively.

BRIEF DESCRIPTION OF PROJECT

AND PRODUCT Following key parameters must be addressed as per pre-feasibility study:

• Techniques: Different methods and techniques are used for off-season vegetable

farming. However, keeping in view the economical, technical

andmanagerial factors, high tunnel off season vegetable farming is

suggested for the proposed project

• Location: The business can be successfully carried in Punjab, KhyberPakhtunkhwa

and some parts of Balochistan.



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• Product: Year round vegetable consumption is increasing in Pakistan due to changing

food habits. Off season tunnel farming is the only way to fulfill this

objective.

• Target Market: In addition to local consumption in the country, there is an enormous

export potential.

• Employment Generation: The proposed project will provide direct employment to

seven individuals. Financial analysis shows the profitability of proposed

business within first year of its operation.

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 farming.

Land that is being utilized for off-season vegetable farming should be tested which will help in determining the quality of land for agriculture purposes.

Farmer should ensure that the plant they are planning to grow must have the ability to self-pollinate under the plastic sheet.

Selection of the seed is most important factor because this determines the productivity of the crop.

Vegetables, which are in demand, should be cultivated, this will help in earning higher profit margins.

Timing of cultivation of vegetables has to be done accurately. The farmer should have knowledge about the benefit that the early crop will offer and should gather data about the prices of these early crops.

INSTALLED AND OPERATIONAL

CAPACITY FOR OFF SEASON

VEGETABLE FARMING This pre-feasibility suggests a farm operation on one acre of land with eight tunnels of

size (30 x 100 ft) each.



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GEOGRAPHICAL POTENTIAL FOR

INVESTMENT The proposed location for establishment of the tunnel farming will primarily be

temperate and sub tropical areas.

POTENTIAL TARGET MARKETS The marketing of off season vegetables follows the traditional marketing channel,

through middlemen or wholesalers at farm who identifies potential buyers and

negotiate price, or directly to retailers in urban markets. The time spent in

transportation, from farm to the retail shop, varies from area to area. Over the years,

transportation of vegetables has improved with the use of better and refrigerated

vehicles. However, greater the distance between farm and consumer, more complicated

will be the marketing or distribution system, due to the perishable nature of the

vegetables. The key factors in marketing are availability of current market information,

quality of vegetables and supply & demand which will determine the selling price.

PRODUCTION PROCESS FLOW The overall production cycle for the off season vegetable farming comprises of 4-8

months, depending upon the crop. In case of tomato, the production cycle will take eight

months to achieve the desired output.Following is the production process flow of off-

season vegetables farming:

Figure 1: Production flow of off- season vegetables

Nursery Bed

Preparation

Soil

Fertilizing

Nursery

Transplantation

Top Dress

Fertilizing Harvesting

Plant

Protection

Moisture

Conditioning

Shipment Post

Harvesting

Aspects

Grading



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Sowing& Picking Period Of Off -Season Vegetables Following are sowing and picking periods of selected off-season vegetables in their

respective normal growing seasons:

Table 1: Sowing and picking period for the selected off--season vegetables

vegetables Sowing period Picking period

Tomato October (Nursery) November (Transplantation)

February-May

Cucumber End of October to end of December (direct seeding)

Mid January to May

Sweet peppers Mid of September to 1st week of October End of October to 1st week of November (Transplantation)

End of January toSeptember

Temperature Requirements for Best Growth of Vegetables

Temperature is much important in off-season vegetables.Following are the temperature

requirement for the off-season vegetables

Table 2:Temperature Requirements for Vegetables

Vegetables Temperature Requirements

Tomato 29-21

Cucumber 24-18

Sweet pepper 24-21

PROJECT COST AND BENEFIT

SUMMARY A detailed financial model has been developed to analyze the commercial viability of off-

season vegetable farming 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.



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11.1ProjectEconomics

The following table shows the Net Present Value (NPV), Benefit Cost Ratio (BCR),

Internal Rate of Return (IRR) and payback period.

Table 3.Project Economics

Description Details

Net Present Value (NPV) 2,117,799

Benefits Cost Ratio (BCR) 1.53

Internal Rate of Return (IRR) 32%

Payback Period (years) 3.15

Returns on the scheme and its profitability are highly dependent on theentrepreneur

having some practical knowledge about agriculture & farming,selection of fertile land,

selection of best seed, cultivating the in-demandvegetables and selection of right time

for vegetable cultivation.

11.2Project Financing

Following table provides details of the equity required and variables related to bank

loan;

Table 4: Project Financing

Description Details

Project life (Years) 10

Equity Ratio (10%) 154200

Debit Ratio (90%) 1387800

Interest Rate on Loan 8%

Debt Tenure (Years) 8



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11.3 Project Cost

Following requirements have been identified for operations of the projectedbusiness: Table 5.Total Project Cost

Capital Investment Amount (Rupees)

Capital Cost (one time investment) 685000

Initial operational cost 857000

Total Cost 1542000

11.4 Space Requirement

Following is the space requirement for the construction of Eight Tunnels for the Project.

Table 6.Space Requirement and its Cost Space Requirement (30x100 Sq. ft.)

Cost Rs./ tunnel

Quantity (No)

Area (Acre)

Total Cost (Rs.)

Construction of tunnels 80,000 08 01 640,000

Total 640,000

11.5Machinery and Equipment

Following table provides a list of machinery and tunnel farm equipment required for

Off-Season Vegetable Farming (High Tunnel).

Table 7.Machinery&EquipmentCost Description Quantity

(No) Unit Price

(Rs.) Total (Rs.)

Tube Well and Channels including boring & motor

01 250,00 250,00

Electricity connections 20,000 20,000

Total 45,000

11.6 Operational and Maintenance Cost



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Following table provides list of Consumable Requirement for off season vegetable

farming.

Table 8.Operational & Maintenance Cost

Description No. Unit Price Total

Plastic Cost 120000

FYM Cost 10000

Chemical Fertilizer Cost 12000

Land Lease expenses 50000

Land preparation expenses 10000

Seed Cost 25000

Labor expenses 6 11000 per month 528000

Nursery raising expenses 12000

Herbicides and insecticide Cost 50000

Irrigation Cost 40000

Total Cost 857,000

11.7Human Resource Requirement

The table below provides details of human resource required to manage basic tunnel

farm. The staff salaries are estimated according to the market trends. However, these

requirements and pay scales may vary area to area.

Table 9. Human Resource Requirement and its Cost

Description No. of Employees Salary/person/ month Total salary per year

Labour 6 11000 528000

11.8Revenue Generation

Final product of tunnel farming is vegetable that will generate revenue. The proposed

crop mix is tomato, cucumber and sweet pepper and the average capacity of farm is

35000, 40000 and 8000 kg per acre with sale price as per market Rs. 50, Rs. 40 &Rs. 50

respectively.



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Table 10. Revenue and production of the project

Vegetable Land Utilization

(Acre)

Production Quantity

(Kgs/Acre)

Total Production

Quantity (kgs)

Sale Price Rs./Kg

Amount

Tomatoes 0.33 35000/- 11550/- 60/- 693000

Cucumber 0.33 40000/- 13200/- 40/- 528000

Sweet Pepper 0.33 8000/- 2640/- 50/- 132000

Total Amount 1353000

KEY ASSUMPTION Particulars Assumption

Sales Price Growth Rate 5% per year

Increase in cost of raw material 5% per year

Increase in utilities 5% per year

Debt/Equity Ratio 90:10

Plant Building Maintenance Expenses 10%

Machinery Maintenance Expenses 10%

Loan Period 8 years

Grace Period 1 year

Loan installments Yearly

Financial charges (interest rate) 8%



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FINANCIAL ANALYSIS Table 11. Project Income Statement

Years Capital

Cost R&M/

Depreciation Variable Cost Total Cost Benefits Cash Flow

Installment/Year

Income after Installment

Present Value Cost

Present Value

Benefit

Discount Factor

0 1542000

1542000 0 -1542000

1 0 34250 857000 891250 1353000 461750 123360 338390 891250 1353000 1

2 0 34250 899850 934100 1420650 486550 296176 190374 864907 1315416.67 0.926

3 0 34250 944843 979092.5 1491682 512590 296176 216414 839414 1278877 0.857

4 0 34250 992085 1026335 1566266.6 539932 296176 243756 814738 1243353 0.794

5 0 34250 1041689 1075939 1644580 568641 296176 272465 790847 1208815 0.735

6 0 34250 1093773 1128023 1726809 598786 296176 302610 767714 1175237 0.681

7 0 34250 1148462 1182712 1813149 630437 296176 334262 745309 1142592 0.630

8 0 34250 1205885 1240135 1903807 663672 296176 367496 723607 1110853 0.583

9 0 34250 1266179 1300429 1998997 698568

702581 1079996 0.540

10 0 34250 1329488 1363738 2098947.1 735209

682209 1049996 0.500

1542000

10779254 11121754 2266863 4354135

7822576 11958136

tunnel farming feasibility report financial management

Data & Analytics

project cost

project financing

project prefeasibility

brief description of

season vegetable farming

financial study

business management

financial analysis