TABLE OF CONTENTS 1 EXECUTIVE SUMMARY 2 2 … · Feasibility Study- Broccoli, Iceberg lettuce, Cherry tomato 4/27/11 Etudes et Consultations Economiques s.a.r.l. 1 TABLE OF CONTENTS

Feasibility Study- Broccoli, Iceberg lettuce, Cherry tomato 4/27/11

Etudes et Consultations Economiques s.a.r.l. 1

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY .............................................................. 2 2 PROJECT DESCRIPTION ........................................................... 3 3 PRODUCT STRATEGY ................................................................ 3

3.1 BROCCOLI...................................................................................................... 4 3.2 ICEBERG LETTUCE .......................................................................................... 5 3.3 CHERRY TOMATO ........................................................................................... 6 4 MARKET ANALYSIS ................................................................... 7

4.1 FARMS STATUS IN BINT JBEIL........................................................................... 7 4.2 MAIN COMPETITION ......................................................................................... 8

4.2.1 Different kind of crops grown in Bint Jbeil ............................................. 8 4.2.2 Direct competitors ................................................................................. 8

4.3 TARGET MARKET ............................................................................................ 9 5 SWOT ANALYSIS ........................................................................ 9 5.1 STRENGTHS ................................................................................................... 9 5.2 WEAKNESSES ................................................................................................ 9 5.3 OPPORTUNITIES ........................................................................................... 10 5.4 THREATS ..................................................................................................... 10 6 MARKETING PLAN ................................................................... 10

6.1 PRICING....................................................................................................... 11 6.2 SALES CHANNEL ........................................................................................... 11 7 FINANCIAL PLAN ...................................................................... 12

7.1 EQUIPMENT COSTS ....................................................................................... 12 7.2 MAJOR ASSUMPTIONS ................................................................................... 13 7.3 PROJECTED INCOME STATEMENT ................................................................... 18 7.4 PROJECTED BALANCE SHEET.......................................................................... 19 7.5 PROJECTED CASH FLOWS ............................................................................. 20 7.6 RATIO ANALYSIS........................................................................................... 20 7.7 BREAK-EVEN ANALYSIS ................................................................................. 21 7.8 SENSITIVITY ANALYSIS .................................................................................. 22 8 RECOMMENDATIONS AND KEY SUCCESS FACTORS ......... 22 9 ECONOMIC IMPACT EVALUATION ......................................... 23



1 Executive summary The proposed project consists in establishing a farm for the production of broccoli, iceberg lettuce and cherry tomato in a village of the caza of Bint Jbeil. The farm will have three major target markets. First, supermarket chain stores, second hotels and restaurants and third, other small retailers. The targeted region is Greater Beirut, Mount Lebanon and other major cities since the cultivated vegetables are somehow refined and they are more expensive than other types of vegetables. The total investment amounts to $86,940; it includes equipment with a total value of $50,700, the cost of the other fixed assets, such as fixtures, furniture, office equipment and computers is $30,000, and working capital needs amounting to $6,240. The main financial assumptions take into consideration, on the production side, the low cost of labor and the availability of farmers in Bint Jbeil as important assets, and on the sales side, prices have been set as to be equal or lower than those of the competition. The projections are taken over a period of 5 years. We expect net income to be around $9,426 the 1st year and the reach $18,982 by the 5th year of production. The farm will also be able to distribute dividends of $15,000 during the 2nd, 3rd and 4th year of production, and to distribute $20,000 dividends during the 5th year. The farm provides an Internal Rate of Return (IRR) of 25% and a payback period of 5 years. These results are satisfactory and show that the project is viable. A worst-case scenario was developed assuming that 75% of net production is sold as compared to 85% in the basic scenario. It gave an IRR of 15% and a payback period of 6.7 years. A best - case scenario was also elaborated considering that 95% of net production was sold. In this case the IRR is 25%, the same as in the most likely case, but the payback period drops to 4.3 years. This project will be a successful one both on the business side and on the socio- economic one. As was stated above, the farm is expected to be a lucrative enterprise for its investors. More importantly, it will create 4 job opportunities in the agriculture sector. Furthermore, it will contribute to the social enhancement of the region, and it will also be a pioneer in diversifying a sector dominated by traditional crops through the introduction of new crops.



2 Project description This project consists of establishing a plantation specialized in refined vegetables such as broccoli, iceberg lettuce and cherry tomatoes. Bint Jbeil’s soil is adequate for these crops and the alternation of the harvesting period will allow farmers to work almost all year round. The land area that will be planted is 10,000 m2 , but the total land area will be of 11, 000m2 since approximately 10% of the land will be used for parking and circulation. The following table shows the distribution of plots according to crops. Certain crops such as broccoli and iceberg lettuce are grown in open- air while others such as cherry tomatoes need green houses.

3 Product strategy This plantation will focus on niche products for which there is considerable demand in the main cities and especially in Greater Beirut and Mount Lebanon. The major strategic objectives are: Delivering good quality products able to compete with imports, and thus

provide import substitutes for local importers and distributors of these crops. Operating a deep market penetration in order to cater to important potential

clients such as hotels, restaurants and super markets. The main crops that will be planted are: Broccoli Iceberg lettuce Cherry tomato

Distribution of land per crop Square metersBroccoli 5,000Iceberg 3,750Cherry tomato 1,250Total cultivated area 10,000Total land area 11,000



3.1 Broccoli

Broccoli is known as the "Crown Jewel of Nutrition" for its vitamin-rich, high in fiber, and low in calorie properties. Not only does broccoli give the best vegetable nutrition available, it also gives many ways to lead a healthier life, by preventing heart disease, cancer and several other diseases. When ranked with the rest of the crops, broccoli is generally the most vigorous and trouble-free. However, it lacks tolerance to extreme heat, so early plantings are essential. Planting information: Nearly 100% of the broccoli crop is directly seeded. Seeds are placed up to 1.6 cm deep on 1 meter bed (two seed lines per bed). Spacing between seed lines is usually about 50 cm. Broccoli is planted in a standing position. Normal plant spacing is 50 cm apart. Plant spacing within rows varies according to grower preference. Factors to consider in determining plant spacing are seedbed texture, planting period, insect pressure, and variety. Seeds of some varieties produce marketable broccoli heads while others produce plants with very small, non-salable heads. Research has shown that plants develop larger heads with wider spacing and more compact heads with narrow spacing. Improper plant spacing often results in reduced yields due to the production of heads that are either too large or



too small. Moreover, the biggest reason for a failure when direct seeding is performed is soil crusting caused by uneven watering. Soil requirements: Broccoli grows best on well-drained soils; however, it will tolerate a wide range of soil textures. Excellent broccoli crops have been produced on soils ranging from dune sand to silty clay. When grown on silty clay soils, it is necessary to prepare a fine seedbed in order to monitor plants effectively. Broccoli has greater salt tolerance than lettuce, carrots or onions. Insects: Aphids, cabbage worms, flea beetles, and symphylans are generally the most troublesome. Disease: The gardener can help prevent viral and fungal broccoli diseases by practicing long crop rotations, using sterile starting mixes if transplanting, and practicing general sanitation procedures. 3.2 Iceberg lettuce

Planting information: The seedlings are carefully grown in greenhouses in temperature-controlled conditions. They take about 3 weeks to reach the size where they are ready to be planted in the field. The plants nursery’s work is now done and they hand over the seedlings to the salad crop growers. Before the seedlings are planted, specialized machinery goes to work to prepare the land. This ensures the young plants have the best possible start. The peat blocks containing the seedlings are planted a set distance apart. A skilled worker ensures that the peat blocks go into the soil properly, and a supervisor will also check the field to make sure the seedlings are correctly planted. While they are growing, Iceberg lettuce are carefully nurtured to prevent disease and damage. Farm managers monitor the crops every day checking their progress. If additional nutrients, water and treatments are required to maintain the best possible growing environment, they are applied under a carefully managed process. This crop management produces a healthy and consistent quality product.



Pest and disease control: Insect pests include crickets, cutworms, leaf miners, salt marsh caterpillars, and beet armyworms. A pre-plant application of a soil applied systemic insecticide is commonly used to combat whitefly. The most serious diseases affecting iceberg lettuce are lettuce big vein virus (LBVV), bottom rot, gray mold, and lettuce drop. Use mosaic-free seed (i.e., no virus in 30,000 seed) to prevent lettuce mosaic virus (LMV). 3.3 Cherry tomato

These easy-to-grow small tomatoes come in various plant sizes, flavors, and fruit characteristics. Some plants are small, like Early Cherry, and are suitable for large pots. Other plants, like Sweetie, are viney and suited to trellising. Planting information: Seeds are sown indoors into sterile seedling mix 6-8 weeks before the end of spring. Then, the seeds are planted 0.5 cm deep, lightly watered and covered with plastic or a Propagation Dome to ensure that they do not dry out. Tomato seeds germinate best in a soil temperature range of 21-32°C. Cherry



tomatoes need 6 to 14 days to emerge. When the first set of true leaves has emerged, the seeds are transplanted into 7-10 cm pots and placed in an area with full light and cooler temperatures (15.5-21°C). Seeds must be watered carefully. Space determinate varieties 45 to 60 cm apart and indeterminate varieties 50 to75 cm apart. 90 cm between rows are allowed. Determinate/ indeterminate: Determinate varieties typically spread laterally and therefore do not need staking. Indeterminate varieties grow vertically until the bitter end and need to be staked or trellised for best production. They will produce fruits until frost, always leaving some green tomatoes at the end of the season. Insects/ pests: Rotenone-Pyrethrin or crop row covers are used to discourage flea beetles early in the season, when they can be most destructive. Diseases: Natural genetic plant resistance is the best form of disease control. For diseases like early and late blight, a strict 3 year rotation and a sanitation program that includes destroying all the vines at the end of the year are the best defenses.

4 Market Analysis 4.1 Farms status in Bint Jbeil

As in most rural areas in Lebanon, framers prefer by far to cultivate their plots themselves rather than leasing them. The table above clearly illustrates this assumption; in fact more than 95% of the plots are cultivated by their owner and less than 5% of the useful land is leased to other farmers.

Farms owned and managed in Bint Jbeil according to size in dounoums

Cultivated land (in dounoums)Total number

of farmsNumber % Number %

Uncultivated land 62 62 100% 0 0%Less than 1 291 261 90% 30 10%From 1 to 2 865 808 93% 57 7%From 2 to 5 2,562 2,429 95% 133 5%From 5 and 10 1,953 1,881 96% 72 4%From 10 to 20 1,293 1,253 97% 40 3%From 20 to 40 449 434 97% 15 3%From 40 to 60 64 62 97% 2 3%From 60 to 80 25 23 92% 2 8%From 80 to 100 5 5 100% 0 0%From 100 to 150 7 7 100% 0 0%From 150 to 200 1 1 100% 0 0%From 200 to 500 3 1 33% 2 67%More than 500 1 0 0% 1 100%TOTAL 7,581 7,227 95% 354 5%

Farmer cultivating own land Farmer renting land



The table above shows two striking truths about the farmers in the caza of Bint Jbeil. Men are much more involved in agriculture than women; in fact 89% of the

farmers in Bint Jbeil are men, and only 11% are women. It is obvious that younger generations are much less interested in agriculture

than older ones. Only 14% of men and women below 35 years old work in agriculture.

The jobs that will be created by the farm will hopefully attract young and motivated people, including women, since the jobs in question do not require hard physical work. 4.2 Main competition

4.2.1 Different kind of crops grown in Bint Jbeil

4.2.2 Direct competitors The crops that will be planted in this farm are either already produced in Lebanon or are imported. Nevertheless, demand still exceeds supply for these goods in the local market, therefore, it is certainly a profitable business and there would be no problem in selling the production.

Distribution of farms according to age bracket and genderAge bracket

Number % Number % Number %Not concerned 2 0.0% 0 0.0% 0 0.0%Less than 25 73 1.0% 70 1.0% 3 0.4%From 25 to 34 985 13.0% 947 14.0% 38 4.6%From 35 to 44 1,413 18.6% 1,309 19.4% 104 12.5%From 45 to 54 1,455 19.2% 1,300 19.3% 155 18.7%From 55 to 64 1,636 21.6% 1,401 20.8% 235 28.3%More than 65 2,017 26.6% 1,721 25.5% 296 35.6%TOTAL 7,581 100.0% 6,748 100.0% 831 100.0%

Total number of farmers Males Females

Types of cultivations in Bint Jbeil Caza

CultivationsCultivated land (in dounoums) % of total

Olives 26,230 42.5%Industrial crops (tobacco) 18,060 29.3%Cereals 8,577 13.9%Fruits 3,248 5.3%Vegetables 1,177 1.9%Leguminous (grains) 989 1.6%Oil producing crops 709 1.1%Uncultivated 2,713 4.4%TOTAL 61,701 100.0%



The best broccoli available in the Lebanese market is imported from France and Belgium. Good quality broccoli is also grown locally by farmers such as Mohammad Assad who has the largest broccoli plantation in Lebanon, in the caza of Tyr. He plants 250,000 seeds yearly that yield a production of 100 tons, approximately. Other broccoli growers include Daccache (Oquaibe), Florana (Jbeil), etc… Iceberg lettuce used to be imported from France and Belgium. However, since the demand of this product has increased, mainly with opening of fast-food chains in Lebanon, Lebanese producers have acquired all the necessary skills in order to produce them according to high quality standards. Therefore, almost all the Lebanese consumption of this vegetable is satisfied by local production. The largest producers of Iceberg lettuce in Lebanon are Mr. Faisal (Hadad) and Mr. Kassem (South Lebanon) Cherry tomatoes are no longer imported since they can be easily grown in any farm. They are therefore planted almost everywhere on the Lebanese territory. 4.3 Target market The objective of the farm consists in reaching three specific target markets and to cover Lebanon’s major cities, especially Greater Beirut and Mount Lebanon. Supermarket chain stores such as Monoprix, Spinneys, le Charcutier Aoun

etc… Hotels and restaurants including fast-food. Mini markets and other small retailers in major cities.

5 SWOT analysis 5.1 Strengths The fact that the cost of labor is much cheaper in Bint Jbeil than in Europe

confers an important comparative advantage for local production assuming local and foreign goods are equal in quality.

Bint Jbeil has a lot of experimented farmers. Therefore, despite the necessary

training employees will receive in order to adapt to the planting of new crops, their agricultural background is an important asset in the success of the farm.

5.2 Weaknesses Agricultural products are bound by seasonality, hence, farmers cannot rely on

all the crops all year round as a source of revenue. Half of the jobs created are seasonal, farmers will be most needed during the

period of seeding and harvesting.



Bint Jbeil caza is far from Beirut, therefore the farm will incur relatively high transportation costs from Bint Jbeil to the clients.

Like in any agricultural project, there is a risk that an unexpected natural event

may destroy entirely a field, therefore depriving the farmers from their source of income.

5.3 Opportunities The main reason for the expensive price of imported vegetables is because

they are transported by plane. Concerning local production there is a tacit oligopoly that keeps prices high. Assuming that the farm produces high quality products, it will be able to operate a deep and extensive market penetration by offering slightly lower prices.

The number of tourists and expatriates who visit Lebanon has been constantly

increasing over the last decade. This trend is favorable to the farm since these products are more demanded by this group of people.

The climate and the nature of the soil in Bint Jbeil are ideal for planting such

crops, this guarantees that if the process of production is properly done, the output will be of high quality.

5.4 Threats Cherry tomatoes, broccoli and iceberg lettuce have already been identified by

farmers as lucrative crops, therefore local competition is already well organized and is likely to increase, at least in the medium run.

Because the products the farm will produce are more refined than other

vegetables, they are more price elastic and their consumption is very sensitive to the purchasing power of consumers.

6 Marketing plan The marketing objectives of the plantation consist in capitalizing on the farm’s competitive advantages. High quality products capable of competing with European imports and locally

produced broccoli, iceberg lettuce and cherry tomato. Competitive and attracting prices due to lower transportation costs and factors

of production (when compared to imports) Existence of a solid demand of these products within a certain segment of the

population.



6.1 Pricing The prices of the plantation’s products will essentially be determined by the sensitivity of demand and competition. Seasonality associated with certain crops at different periods of the year might also influence the price. For the study, we assumed the following average pricing structure.

The plantation will apply differentiated pricing and discounts according to the quantity of vegetables bought and to the regularity of the client. 6.2 Sales channel The plantation will establish strategic alliances with hotels, restaurants, supermarkets and other smaller retail businesses. The marketing and sales manager will have a refrigerated truck and will deliver himself the merchandise to the clients. Promotion of the farm’s products will be done mainly through direct contact by the marketing manager. Again, the targeted regions will mainly cover the areas of Greater Beirut and Mount Lebanon.

PricingItem Price ($/kg)Broccoli 1.83Iceberg 0.43Cherry tomato 1.67



7 Financial plan This section details the calculations, assumptions and methodology used as a basis for the projection of the expected performance of the plantation. 7.1 Equipment costs

Sources: Asmar Est. For Seeds. Mr. Rudi Abi Jabr (agriculture engineer) Daccache Green Lines Unifert Arbusta.

Initial InvestmentCost Items Quantity Unit cost Total costCultivator 1 2,000 2,000Irrigation system 4,000 10 40,000Agricultural tools 700Greenhouse 400 20 8,000Total equipment 50,700

Other fixed assetsConstruction 50 200 10,000Fixture and installations 8,000Refrigerated truck 1 9,000 9,000Furniture 1,000Office equipment 2,000Total fixed assets 80,700Working capital needs 6,240Total initial investment 86,940



Sources: Asmar Est. For Seeds. Mr. Rudi Abi Jabr (agriculture engineer) Daccache Green Lines Unifert Arbusta. The first table shows that the cost of equipment directly related to the cultivation of the three crops is of $50,700. The cost of the other fixed assets amounts to $30,000, and the working capital needs amount to $6,240. Hence, the cost of the total initial investment is of $86,940. Because the cost of the raw material, i.e. grains and fertilizers are relatively inexpensive, the total beginning inventory amounts to $3,181. 7.2 Major assumptions Here follows an explanation of the distribution of land spacing per crop.

This distribution takes into consideration the various technical parameters that must be respected in order to grow these crops. The cultivated area will be of 10,000m2, but the total area rented will be of 11,000m2. In fact, around 10% of the land can not be cultivated because space has to be allowed for walkways and

irrigation canals. Agricultural projects need not be located in a central area, therefore rent is assumed to be of $1/m2, hence rental expenses will be of $11,000 yearly.

Beginning inventoryDescription Quantity Unit cost ($) Amount ($)Broccoli seeds 9,375 0.014 131Iceberg seeds 13,750 0.013 179Cherry tomato seeds 6,250 0.001 6Fertlizers for broccoli 960Fertlizers for iceberg 1,125Fertlizers for cherry tomato 600Fertlizer for all crops 180Total 3,181

Seeds planted on 1000 sq.m Amount of seedsBroccoli 9,375Iceberg 13750Cherry tomato 6250

Distribution of land per crop Square metersBroccoli 5,000Iceberg 3,750Cherry tomato 1,250Total cultivated area 10,000Total land area 11,000



The total cost of fertilizers needed for one year is $2,865. It includes basic fertilizers used for all crops as well as specific ones.

Fertilizers needed Per 1,000 sqm Cost per kgBroccoli 8 24 times a year 960Iceberg 500 0.2 3 times a year 1,125 Cherry tomato in kg 200 1.2 2 times a year 600 For all crops in kg 50 0.36 once a year 180 Total 2,865



The table below is based on the two tables above. Broccoli and Iceberg lettuce have both three seasons per year, while cherry tomatoes can be grown twice a year. Waste of production at a rate of 10% has been allowed, as it is a realistic figure.

Pricing has been obtained by estimating the price at which wholesalers, importers and other farmers sell their products to supermarkets. The prices proposed in the study are slightly lower than those prevailing in the market.

It is estimated that the farm could sell 85% of its net output in a normal year. The other 15% are expected to be a waste mainly because these goods are perishable and delicate.

Number of seasons per year for each cropBroccoli 3Iceberg 3Cherry tomato 2

Harvest per single cropItem Weight (Kg)Broccoli 0.40Iceberg 0.15Cherry tomato 3.00

PricingItem Price ($/kg)Broccoli 1.83Iceberg 0.43Cherry tomato 1.67

Expected revenuesItem Price per Kg % sold Production/yr in kg Revenue ($)Broccoli 1.83 85% 10,125 15,778Iceberg 0.43 85% 5,569 2,051Cherry tomato 1.67 85% 33,750 47,813Total 65,642

Yearly production

ItemProduction/season (Kg) Seasons Waste

Production/yr (Kg)

Broccoli 3,750 3 10% 10,125 Iceberg 2,063 3 10% 5,569 Cherry tomato 18,750 2 10% 33,750



It is expected that growth in sales will be at 5% during the second year and will reach its maximum during the third year, after the farm will have heavily marketed its products.

Moreover, the farm will incur transportation costs of $2,467 annually. The table below explains how this figure has been obtained.

We assumed a distance per trip of 370 km to cover the main cities and we estimated that the manager will have to deliver the products 50 times per year. Moreover, the average price of a tank of gasoline is $16 and we estimated that the truck has a consumption of 120 km per tank. The following table shows the main assumptions for the income statement.

It is assumed that general expenses will grow by 2% annually and maintenance expenses of equipment, fixtures and installations will increase by 2% annually. The income tax rate is 15%. Moreover, the farm will hire 2 seasonal workers during harvest period estimated to be the equivalent of 2 months. The following table shows the main assumptions for the balance sheet.

Income Statement AssumptionsAnnual increase in general expenses 2%Maintenance expenses 2% of fixtures & installationsSeasonal workers 2 monthsAnnual increase in salaries 2% annuallyIncome Tax Rate 15%

Year 1 Year 2 Year 3 Year 4 Year 5Projected growth in sales 5% 8% 5% 3%

Balance Sheet AssumptionsAccounts Receivable 30% salesInventories 0.5 month of cost of salesAccounts payable 1 month of cost of salesExpenses payable 20% of general expenses

Transport expensesNumber of trips for delivery/year 50Distance travelled each trip 370 kmCost of one tank of gasoline 16$vehicule consumption 120km/tank



The depreciation rates used in the following table follow international accounting standards.

Staff structure

Regarding the administrative staff, the farm will have a general manager who will be at the same time the marketing manager in charge of introducing the farm and its products to clients and of delivering the products. The farm will also have 1 full-time worker who will have received all the necessary training in order to grow efficiently these crops. The farm will also hire two seasonal workers during the harvest period.

DEPRECIATION RATESConstruction costs 2.0%Equipment 10%Furniture 7.5%Fixtures and installations 10%Office equipment and computers 20%Vehicles 12.5%

STAFF STRUCTURENumber of Monthly Total Total Monthlyemployees Salaries salaries NSSF Transport Transport Total

General manager 1 800 800 198 104 104 998 Labor 1 300 300 300 Seasonal labor 2 250 500 500 TOTAL 4 1,350 1,600 198 104 1,798



7.3 Projected income statement

The income statement shows sound income levels with average net income of $14,550 annually and an average net profit margin of 20%.

Broccoli, Iceberg, Cherry tomatoProjected Income Statement Year 1 Year 2 Year 3 Year 4 Year 5

Projected growth in sales 5% 8% 5% 3%Revenues from Broccoli 15,778 16,567 17,892 18,787 19,351 Revenues from Iceberg lettuce 2,051 2,154 2,326 2,442 2,516 Revenues from Cherry tomato 47,813 50,203 54,219 56,930 58,638 Total revenues 65,642 68,924 74,438 78,160 80,504

Cost of sales 8,578 9,006 9,727 10,213 10,520 Salaries and wages 4,600 4,601 4,602 4,603 4,604 Total cost of sales 13,178 13,607 14,329 14,816 15,124 Gross margin 52,464 55,316 60,109 63,343 65,381

Gross profit margin% 79.9% 80.3% 80.8% 81.0% 81.2%ExpensesRental of land 11,000 11,000 11,000 11,000 11,000 Utilities:Electricity,water,telephone 3,600 3,672 3,745 3,820 3,897 Transport expenses 2,467 2,516 2,566 2,618 2,670 Maintenance expenses 1,014 1,034 1,055 1,076 1,098 Salaries-Administrative 9,600 9,792 9,988 10,188 10,391 Social Security Charges 2,376 2,424 2,472 2,521 2,572 Transport-staff 1,248 1,273 1,298 1,324 1,351 Other expenses 2,400 2,400 2,400 2,400 2,400 Total General & Administrative Exp 33,705 34,112 34,526 34,948 35,379 EBITDA 18,760 21,205 25,583 28,395 30,001 Depreciation expenses 7,670 7,670 7,670 7,670 7,670 Tax expenses 1,663 2,030 2,687 3,109 3,350 Net Income 9,426 11,505 15,226 17,616 18,982

Net profit Margin 14% 17% 20% 23% 24%



7.4 projected balance sheet The balance sheet shows the projected assets and liabilities of the farm.

The farm is expected to pay dividends of $15,000 for years 2, 3 and 4, and of $20,000 for year 5.

Broccoli, Iceberg, Cherry tomatoProjected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5

Cash & Equivalents 6,811 9,904 15,928 24,980 30,887Accounts Receivable 19,693 20,677 22,331 23,448 24,151Inventory 4,289 4,503 4,863 5,107 5,260Current Assets 30,792 35,084 43,123 53,534 60,298Constuction 10,000 10,000 10,000 10,000 10,000Fixtures & installations 8,000 8,000 8,000 8,000 8,000Equipment 50,700 50,700 50,700 50,700 50,700Furniture 1,000 1,000 1,000 1,000 1,000Office equip, computers, telecom 2,000 2,000 2,000 2,000 2,000Vehicle 9,000 9,000 9,000 9,000 9,000Accumulated Depreciation 7,670 15,340 23,010 30,680 38,350Net Fixed Assets 73,030 65,360 57,690 50,020 42,350Total Assets 103,822 100,444 100,813 103,554 102,648Accounts payable 715 751 811 851 877Expenses payables 6,741 6,822 6,905 6,990 7,076Total Liabilities 7,456 7,573 7,716 7,841 7,952Invested Capital 86,940 86,940 86,940 86,940 86,940Retained Earnings 9,426 5,931 6,157 8,773 7,755Shareholders Equity 96,367 92,871 93,097 95,714 94,695Total Liab. & Shareholders Equity 103,822 100,444 100,813 103,554 102,648

Stat. Of Retained Earnings Year 1 Year 2 Year 3 Year 4 Year 5Begin. Retained Earnings 9,426 5,931 6,157 8,773 Net income 9,426 11,505 15,226 17,616 18,982 Dividends Paid 15,000 15,000 15,000 20,000

Ending Retained Earnings 9,426 5,931 6,157 8,773 7,755



7.5 Projected Cash Flows

The projected cash flows show the initial net investment in fixed assets and the net invested capital by the owners. The distributed dividends are shown starting in year 2. 7.6 Ratio Analysis The following table shows the main financial ratios for the farm.

Broccoli, Iceberg, Cherry tomatoSTATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5

Net income 9,426 11,505 15,226 17,616 18,982 Adjustments to reconcile net incometo cash provided by operating activitiesDepreciation 7,670 7,670 7,670 7,670 7,670 Changes in Working Capital (16,526) (1,082) (1,872) (1,235) (745) Total Adjustments (8,856) 6,588 5,798 6,435 6,925 Cash provided by operating activities 571 18,093 21,024 24,052 25,907

Cash Flow from Investing ActivitiesCapital expendituresInvestment in fixed assets (80,700) Net cash used in investing activities (80,700)

Cash flow from financing activitiesNet Investment by owners 86,940 Dividends distributed (15,000) (15,000) (15,000) (20,000) Cash provided by financing activities 86,940 (15,000) (15,000) (15,000) (20,000)

Cash at beginning of year 6,811 9,904 15,928 24,980 Changes in cash 6,811 3,093 6,024 9,052 5,907 Cash at end of year 6,811 9,904 15,928 24,980 30,887

Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5Current Ratio 4.13 4.63 5.59 6.83 7.58Return on Average Assets 9.1% 11.5% 15.1% 17.0% 18.5%Total Assets Turnover: Sales / total assets 63% 69% 74% 75% 78%

Gross Profit Margin 80% 80% 81% 81% 81%Operating Profit Margin 29% 31% 34% 36% 37%Net Profit Margin 14% 17% 20% 23% 24%

Return On Average Equity=ROE 10% 12% 16% 18% 20%Return on Investment = ROI 11% 13% 18% 20% 22%



- The current ratio starts at 4.13 and reaches 7.58 by year 5. Such values show that the farm will always have satisfactory liquidity levels.

- The return on average assets significantly increases over the years, following

the increase in net income. These figures show that assets are efficiently used in order to generate output.

- The total assets turnover is high, indicating satisfactory level of sales in

comparison with the assets base.

- The profitability margins are all sound in all years.

- The Return On Average Equity (ROE) starts at 10% in year 1 and doubles by the 5th year. The average ROE for the 5 years is of 15.2%

- The Return On Investment also shows satisfactory levels, starting at 11% in

year 1 and reaching 22% the 5th year. Over the 5 years, its average is of 16.8%

- Finally, the Internal Rate of Return (IRR) is 25%, and the payback period of

the investment is expected to be of 5 years.

7.7 Break-even analysis The following table shows the minimum annual revenue levels needed for the pastry shop to break- even. A minimum revenue of $52,335, on average, is therefore required if the farm is to stay in business.

Broccoli, Iceberg, Cherry tomatoBREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5

Total Revenues 65,642 68,924 74,438 78,160 80,504Total Variable Costs 13,178 13,607 14,329 14,816 15,124Total Fixed Costs 41,375 41,782 42,196 42,618 43,049

Break-even revenues 51,767 52,060 52,255 52,587 53,007



7.8 Sensitivity analysis A worst- case scenario is assumed whereby the level of sales would be 12% less than the level expected. The farm would sell 75% of its net output instead of the 85% expected. This would yield an average net income of $7,028 instead of the $ 14,551 expected. Moreover, the Internal rate of return (IRR) would be 15% instead of 25% in the normal case and the payback period is 6.7 years in this case. A best- case scenario is also developed assuming that sales are 6% higher than those expected. In this case, the farm sells 90% of its net output instead of 85%. In this optimistic perspective, the average net income would be $18,058. The IRR stays 25% but the payback period decreases to 4.3 years instead of the 5 years expected.

8 Recommendations and key success factors One of the most important objectives of the farm is to achieve and maintain

high quality standards, in order to compete efficiently with imported products and those that are produced locally by professionals.

The price offered to clients must be slightly less than the one proposed by

competitors in order to penetrate the market. Moreover, a differentiated pricing system will be established to offer discounts to key clients.

The marketing and sales manager must be zealous and pro-active: he will do

his best to detect potential clients, and he will be in direct contact with them. The marketing manager will also try to establish exclusive farm-client relationships.

The farm should have an impeccable client service providing consistent high

quality products.

Broccoli, Iceberg, Cherry tomato Worst-case Most likely Best-case% of production sold 75% 85% 90%Kgs of Broccoli sold 7,594 8,606 9,113Kgs of Iceberg lettuce sold 4,177 4,733 5,012Kgs of Cherry tomato sold 25,313 28,688 30,375

Average net income 7,028 14,551 18,058 Average net profit margin 11% 20% 20%

Internal rate of return 15% 25% 25%Payback period in years 6.7 years 5 years 4.3 years

Feasibility Study- Broccoli, Iceberg lettuce, Cherry tomatoe 4/27/11


9 Economic impact evaluation This project will have positive consequences on both the business aspect as well as on the socio-economic one. This project is pioneer in promoting alternative crops to be planted in a

region where agriculture is dominated by traditional ones with low profit margins. This step in agricultural diversification may encourage other farmers to introduce new crops to their plantations.

This plantation will create 2 full-time jobs and 2 part-time jobs, hence

contributing to the socio-economic improvement of the region. These employees with an agricultural background will have their skills upgraded by learning the planting process of new crops.

The farm will create backward linkages by buying all the light equipment it

needs from local sanitary and tools stores. This project will offer new investment opportunities and consequently

additional revenues for people from Bint Jbeil. This project is environment-friendly, all necessary measures to ensure the

preservation of soil and ground waters will be implemented.

Documents

TABLE OF CONTENTS 1 EXECUTIVE SUMMARY 2 2 … · Feasibility Study- Broccoli, Iceberg lettuce, Cherry tomato 4/27/11 Etudes et Consultations Economiques s.a.r.l. 1 TABLE OF CONTENTS