PROJECT SUMMARY

Project Proposal

MODERN RICE FARM AND PROCESSING CENTER

Project Proponent

Climate Change Agricultural Technical Management Corporation(Company Name)

Unit – E MR Building, 1084 Quirino Avenue, San Dionisio, Paranaque City, Philippines(Company Address)

Project Description

The proposed Modern Rice Farm and Processing Center is a corporate farm that will utilize hybrid seeds with proven yield of about ten (10) tons of paddy rice per hectare. Moreover, the project will use advanced and efficient irrigation system resulting in dramatic reduction of water consumption per crop, will employ a production process that is fully mechanized, will implement a weekly salary scheme for the farmers, and will sell the finished products on a wholesale basis.

This project will consolidate around 100 hectares of land which ownership will remain with the farmers, will be leased from the farmers, and will make the farmers work on their land with a new system of remuneration designed to improve their income.

Project Goals and Objectives

The main goal of this project is to establish a corporate rice farm and processing center that utilize modern technology to increase production, to improve the quality of finished products, and to uplift the lives of farmers.

The objectives of this project are: (1) to produce around 2,000 metric tons of paddy rice per annum, (2) to plant alternate crops during off seasons such as soya beans with yield of about 400 tons of fresh beans per year; (3) to fortify market position by producing high quality products, satisfying and retaining valued clients, and establishing long term business relationship; (4) to participate, contribute, and capitalize on the development efforts of the government by promoting investments and creating employment opportunities for the local farming communities; (5) to help attain rice sufficiency in the Philippines; (6) to tap the export market in the medium term, and (7) to practice and promote social responsibility by assisting worthy projects, programs and causes in the local community.

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Project Location

The proposed corporate farm is a fertile agricultural land located in Barangay Partida Dos, Municipality of Guimba, Province of Nueva Ecija. Water is available throughout the year from the manmade irrigation system and from deep wells. Vital infrastructures and utilities are in place including highways and roads, communication lines, and supply of electricity and potable water.

Project Highlights, Summary of Findings, and Conclusions

Market Study

Product and Market Descriptions: The Rice Farm and Processing Center (RFPC) will produce high grade milled rice. The varieties of rice selected for the project are SL-8H, SL-12H, and SL-18H; these varieties are proven to produce the high yield per hectare, and likewise these varieties have excellent tastes that will surely satisfy the demand of both local and foreign consumers. The project has an established captive buyer, SL Agritech Corporation (SLAC), an agribusiness corporation that sells different varieties of rice product is ready to purchase all milled rice to be produced from the farm. SLAC is the largest local hybrid rice seed company in the Philippines and tropical Asia as well as one of the leading distributors of premium quality rice both in the local and foreign markets.

Demand and Supply: Rice is the primary staple food in the Philippines. With the population of the country growing by almost two percent (2%) annually, the domestic demand for rice is projected to increase. The Philippines consumed 13, 250,000 Metric Tons (MTs) of milled rice in 2015 as compared to 11,737,710 MTs in 2005- the demand grew by an average of 1.41% per annum. Using these historical figures, the Philippines is projected to consume about 13,436,830 MTs of rice in 2016. However in 2015, domestic demand exceeded the domestic production as imports from foreign suppliers provided 1,800,000 MTs of rice. Rice importation is expected to continue in the coming years until local production meets the local demand.

Rice production and rice processing remain as high prospects in terms of business viability. The strong demand for rice products, especially in metropolitan areas pushed the national government to import rice in the past ten years. The presence of the large volume of imported rice in the Philippines is a clear indication of low supply and high demand of rice in the country.

Competitive Assessment: The existing rice millers establish market linkages with local retailers and strong cooperatives, private companies, schools, government offices, and other institutions. Others are mixing the locally processed high quality milled rice with the low quality imported rice and/or low quality rice produced in other regions in order to lower cost and increase their income. They offer credit sales term of ten (10) calendar days with post-dated check issuance from retailers and free product delivery. Majority of the rice millers in Central Luzon are not spending money for promotional activities or advertisement but rather push their products

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through their in-house sales team. They normally package their rice products in 50 kilogram bags.

Marketing Plan and Programs: The Rice Farm & Processing Center (RFPC) will sell its products to its captive market. It will establish an in-house marketing team who will maintain its good relationship with the captive client and explore other options for further sales growth. It will also assure its consumers that the milled rice will come from pure and fresh produce of the corporate farm and are not mixed with low grade milled rice from other provinces and/or poor quality imported rice. Added value is through the use of the modern system and state of the art facilities designed to produce high quality milled rice. The RFPC will follow the market trend of offering credit sales term of ten (10) calendar days with post-dated check issuance from the captive wholesale buyer. The price of the product will be set at the same price of the leading competitors in the same category.

The RFPC will grow alternate crops during off seasons such as soya beans. The demand for soya bean is growing steadily. Vegetable dealers in Metro Manila and feeds companies in Luzon are the target markets for the alternate crops.

The selling price for both products is projected to increase by an average of three percent (3%) per annum over the period under study. This rate is the annual average rate of increase in prices for the past five years (2010-2014) based on the data provided by the Bureau of Agricultural Statistics.

Conclusion: Upon careful consideration and analysis of the products and markets, the demand and supply situation, the competitive position, and the marketing plans and programs, the demand for high quality milled rice in the target market exists and such demand can be supported by the implementation of the marketing plan and programs. Having answered the crucial questions in the affirmative, pursuing the proposed project is feasible marketing-wise.

Technical Study

Site Description: The proposed corporate farm consists of 100 hectares of agricultural land situated in the Barangay Partida Dos, Municipality of Guimba, Province of Nueva Ecija. The plantation area boasts of availability of water supply for agriculture from the irrigation system and from deep wells throughout the year. The farm is strategically located where vital infrastructures and utilities are in place such as highways and roads, communication lines, and supply of electricity and potable water.

Land: The land will be leased from farmers. The farmers shall have a share of ten percent (10%) of the gross sales in the first five years as payment for the use of their land. From the sixth (6th) year onwards, after the cost of investment is recovered, the share of the farmers will be increased to twenty percent (20%) of gross sales.

Raw Materials: CCATMC will plant three (3) different varieties of hybrid rice, (1) SL-8H; (2)

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SL-12H; (3) SL-18H. These varieties will ensure stable yields, good milling quality, and strong resilience to natural disasters. Other raw materials will be purchased such as fertilizers and insecticides. The cost of raw materials per hectare per season-year amounts to PHP 18,100.00 or PHP 1,810,000.00 for the entire 100 hectares.

During off seasons, soya beans will be planted as an alternate crop which is expected to harvest 4 MTs per hectare per annum. The raw materials cost for the soy beans is projected to reach PHP 6,800.00 per hectare per season-year or PHP 680,000.00 for the entire 100 hectares.

For the period under study, the procurement cost is estimated to increase by 2.5% per annum. This rate is the annual average rate of increase in prices for the past five years (2010 – 2014) based on the data provided by the Bureau of Agricultural Statistics.

Machineries and Equipment: CCATMC will purchase the major machines and equipment from CTMEL, a company based in Shanghai, China. The auxiliary equipment will be purchased from local suppliers. The total cost of farm machineries and processing equipment is estimated to reach PHP 17,480,000.00.

Building and Processing Center: The annual rent for the administrative office and processing center is estimated to be PHP 552,000.00. Minor renovations will be done at an estimated cost of PHP 103,400.00.

Office Equipment, Furniture, and Fixtures: The cost of equipment such as computers and communication gadgets; furniture and fixtures such as tables, chairs and cabinets is estimated to reach Two Hundred Thirty Five Thousand Pesos (PHP 235,000.00).

Waste Disposal: Rice husk and stalk are the waste materials from the rice farm. These waste products can be sold to companies needing biomass materials. These waste products could also be used as fuel for biomass power plant in nearby locations.

Production Process: (1) Seed selection - this is crucial for the reason that good seed produces good harvest, (2) Land Preparation - will be done to ensure ideal soil condition for the plant. After the land is cleared of unnecessary elements and properly plowed and leveled, (3) Herbicide Application - can commence. (4) Nutrient Management - subsequently, fertilizers will be applied to the soil - this will secure excellent growth of plants.

Crops will be sown or established after all the land preparation and conditioning has been done. (5) Crop Establishment - will make use of a tractor with a mounted spreader. Once the seeds are sown, (6) Installation of Sprinkler Irrigation - can take place, then a system of (7) Water Management - proceeds from this process during the basal to flowering stages of the plants.

Then, (8) Mechanical Harvesting - can start when 90 – 95% of grains are already ripe. Once harvested, the processing center will receive the paddy rice and will be moved to the (9) Drying section using the mechanical dryer. Once the moisture of the palay reached the milling level, it is moved to the (10) Milling section using rice mill, then to the (11) Bagging section - 20 kilo bags, and finally to the (12) Hauling section ready for delivery to the buyer/s.

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PRODUCTION PROCESS

Timetable: It will take around two (2) months (from the receipt of the proceeds of the loan) to set up the corporate rice farm which includes land preparation, installation of irrigation system, and planting. After 110 days, or more than 3 months, harvest of matured rice will commence.

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Seed Selection Herbicide Application

Nutrient ManagementInstallation of Sprinkler

Irrigation

Land Preparation

Installation of Sprinkler Irrigation

Water Management Mechanised Harvesting Drying

Delivery to Client Bagging Milling

Crop EstablishmentInstallation of Sprinkler Irrigation

Conclusion: Upon careful consideration and analysis of the facts given above, the resource availability and accessibility is present, the legal and economic considerations are incorporated, and the optimal use of resources is expected to lead to an efficient way of allocation which will produce the desired output at the lowest possible cost. Having established the basic issues in the affirmative, pursuing the proposed project is feasible from the technical viewpoint.

Management and Organization Study

Pre-operating Period: The firms involved during the pre-operating period are:

(1) Climate Change Agricultural Technical Management Corporation (CCATMC) will provide the technology and the management expertise, and will operate both the farm and the processing plant. CCATMC team has a proven competence in agribusiness including growing of crops, food production, packaging and marketing of agri-products, and managing agricultural lands.

(2) CTMEL will provide the necessary equipment that guarantees superior product quality and low maintenance cost. These equipments will be used in the land preparation and harvesting of crops. CTMEL, having years of accomplishment in farming technology, will ensure efficiency and productivity of the operations.

(3) PRIMEX Business Advisors, Inc. will provide its expertise for the preparation of the feasibility study and for the arrangement of the loan package to finance the project.

Operating Period: CCATMC will establish a separate corporation which will manage the operation of the rice farm and processing center. This corporation will be led by the Board of Directors (BOD) which exercises corporate powers, conducts business, and controls all assets of the corporation. Under the BOD is the Executive Management Group (EMG) which is responsible for the efficient and effective administration and direction of the day-to-day business affairs of the corporation. The BOD will be headed by the Chairman while the EMG will be led by the President and Chief Executive Officer (CEO). The EMG consists of the President, CEO and the two (2) Vice Presidents who are heads of the two (2) divisions namely: (1) Operations Division, and (2) Administration Division. The Vice President for Administration is responsible to plan and to conduct continuing training and development programs for the employees of the company subject to the approval of the President. The Board of Directors will allocate the budget for the training and development of personnel.

The RFPC will employ 100 farmers and 3 administrative staff with 6-day working days per week with salaries and benefits totaling to PHP 66,282.00 to be paid on a weekly basis and a total sum of PHP 3,206,664.00 for the first year of operation. Nueva Ecija has an abundant supply of required manpower for the project.

Conclusion: Upon careful consideration of the competence of the investors and the firms involved during the pre-operating period, and likewise the sound management and organization plan during the operating period which covers the type of business organization, the

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organizational chart and functions of each division, the skills and numbers of labor required specifying the duties and time to be devoted to the project, the qualifications, compensations, and fringe benefits, the sources and availability of human resource inventory, and the training and development of employees. Having established the basic issues in the affirmative, pursuing the proposed project is feasible in the aspect of management and organization.

Financial Study

Total Project Cost: The total project cost (Initial Capital Outlay) of One Hundred Thirty-Two Million Eight Hundred Thirty-One Thousand and Four Hundred Pesos (PHP 132,831,400.00) which includes the capital expenditures (PHP 103,973,400.00) which is 78% of total investment, the working capital requirement (PHP 22,560,000.00) which is 17% of total investment, and miscellaneous (PHP 6,298,000.00) which is 5% of total investment.

Sources of Financing: Equity infusion from Investor/s of PHP 44,277,133.33 and Term Loan from same Investor/s or Bank of PHP 88,554,266.67. The Term Loan is payable in 5 years at bank rate of 8% with 1 year grace period on principal payment.

Financial Analysis: Having established the capital structure, the sources of financing and the relevant assumptions, financial projections were prepared and evaluated in terms of profitability, liquidity, payback, sensitivity, and break-even point. The tools of analysis using discounted cash flows such as Net Present Value (NPV) and Internal Rate of Return (IRR) were also employed to provide more objective basis for evaluating the proposed project. The below summarizes the result with the criteria set at the start of the financial study.

Comparison of the Average Projected Result with the Benchmark Rates

Analytical Tools Benchmark Rate Average Result Decision(Accept/Reject)

Net Profit Margin (NPM) 30% 78.80% AcceptReturn on Total Assets (ROTA) 20% 22.82% AcceptCurrent Ratio 2 times 2.27 times AcceptDebt Ratio 60% 13.94% AcceptPayback Period (PP) 5 years 2 yrs. 7 mos. 20 days AcceptNet Present Value (NPV) Positive 154,812,557.09 AcceptInternal Rate of Revenue (IRR) 20% 31.77% Accept

Sensitivity Analysis: The sensitivity analysis will determine how the NPM, PP, IRR, and NPV are affected by a change in the selling price. This is done by changing the value of the selling price while holding all other input variable constant. (For the Optimistic Scenario, a price increase of 20%. For the Pessimistic Scenario, a price reduction of 20%)

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Variable Most Likely Scenario Optimistic Scenario Pessimistic Scenario

Net Sales* 47,166,825.00 62,115,965.00 32,217,685.00

NPM* 78.80% 81.16% 74.25%PP 3 yrs & 20 days 1 yr. 11 mos. & 22 days 3 yrs. 9 mos. & 27 daysIRR 30.62% 42.30% 22.52%NPV 109,321,800.58 234,471,051.44 75,154,062.74

*Average sales and rates for ten years

The results of financial projections for both Optimistic and Pessimistic Scenarios still satisfy the financial feasibility criteria as far as NPM, PP, IRR, and NPV are concerned.

BEP Analysis: Year 1 and onwards Figure at 100% of Normal Capacity

Break-even Point (Volume)

Milled Rice: 1st Crop = 164,349 kilograms 2nd Crop = 164,349 kilograms

Soya Beans = 109,566 kilograms

Break-even Point (Sales)

Milled Rice: 1st Crop = PHP 7,395,724.23 2nd Crop = PHP 7,724,423.08

Soya Beans = PHP 4,119,692.31

Break-even Point (Selling Price)

Milled Rice: 1st Crop = PHP 28.65 2nd Crop = PHP 29.93

Soya Beans = PHP 23.94

Conclusion: The results of financial projections and analysis reveal that the proposed project is very profitable, will remain liquid over the period under study, will operate efficiently, will be able to service its debt on time without resorting to additional borrowings, and will remain profitable even though the projected figures are subjected to the time value of money and discounted at 10% per annum. Having established the foregoing results, pursuing the project is very feasible from the point of view of finance.

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This Presentation Memorandum of the Modern Rice Farm and Processing Center Project is prepared for Investors, Creditors, and Partners at the initiative of PRIMEX Business Advisors.

PRIMEX BUSINESS ADVISORS, Inc.Unit 601 Prestige Tower, F. Ortigas, Jr. Road,

Ortigas Center, Metro Manila, PhilippinesTel. No.: +63 2 631 1041

Mobile No.: +63 917 422 4367E-mail: info@primex.phWebsite: www.primex.ph

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