1 investment opportunity in dried fruits in the valley of the são francisco river integrated...

1 www.codevasf.gov.br

Investment Opportunity in Dried Fruits in the Valley of the São Francisco River

INTEGRATED SUSTAINABLE BUSINESS PROJECT


Project Team

PRESIDENT OF THE REPUBLIC MINISTER OF NATIONAL INTEGRATIONLuiz Inácio Lula da Silva Geddel Vieira Lima

CODEVASF DIRECTORY

President: Orlando Cezar da Costa Castro

Cabinet Chief: Manoel Geraldo Dayrell

Director of the area of Integrated Development and Infra-Structure: Clementino Souza Coelho

Executive Secretary: José Eduardo Borella

Director of the area of Irrigation Companies Management: Raimundo Deusdará Filho

Executive Secretary: Frederico Calazans Machado

Director of the Area of Hydrografic Basins Revitalization: Jonas Paulo de Oliveira Neres

Executive Secretary: Silas Macedo

Executive Manager of Strategic Administration: Alexandre Isaac Freire

Executive Secretary of Administrative Management and Logistic Support: João Honório Carvalho Ramos


Agenda

• Introduction

• Business Model

• Profitability Analysis

• Irrigation Projects (CODEVASF)


INTRODUCTION

• Project DescriptionThe project is a governmental initiative, aiming to attract investments to the Valley of the São Francisco River (web page:http://www.fundace.org.br/pins).

• PENSAAgribusiness Intelligence Center. PENSA researchers are responsible for the business models proposition, economic and marketing analysis and for interacting with potential investors tailoring the analysis to their particular needs (web page: http://www.pensa.org.br).

• CODEVASFSão Francisco and Parnaíba Development Company, which the mission is to develop economically and socially the Valley of the São Francisco and Parnaíba Rivers (web page : http://www.codevasf.gov.br).


Dried Fruit Global Exports

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2000 2001 2002 2003 2004

From 2000 to 2004, the dried fruit exports growth was 27%, corresponding to an increase of over 79 thousand tons.

Source: FAO


• Shorter production cycles;

• Reduced problems with crop plagues and diseases;

• High yields with irrigation;

• São Francisco River has a high quality water for irrigation;

• Climate conditions favor product standardization;

• Land availability;

• Growing demand;

Why investing in Dried Fruits in the Valley of the São Francisco River?


Introductory Concepts on Dried Fruits

Product: Dried fruit or Dehydrated. Fruit with Product: Dried fruit or Dehydrated. Fruit with reduced content of waterreduced content of water

Process: DryingProcess: Drying

• Partial dehydration of a whole mature fruit or pieces of it, towards 15% to 3% of humidity.

• This process may be undertaken with the use of sun light, gas, wood or electricity.


Dehydrated Fruit

There is a need for a Dehydrating plant.

Image: Fruit arriving at the plant.


• Washing and Peeling

Dehydrated Fruit


• Cutting

Dehydrated Fruit


•Dehydration

Dehydrated Fruit


Drying Process

• Dehydration using specific equipment. It may be used an osmotic process.


Dried Fruit

• Packing


Drying Process

• Using sun light for fruit drying.


• Liofilization

FIGURE: Liofilization equipments

Drying Process


Raisings

• There is a need for a processing plant:• Process:

– Cutting the steam;

– Washing;

– Drying;

– Adding Oil;


• For the product:– It limits microorganisms growth; – It limits darkening; – It limits perishing;

Dehydration Advantages


• For the grower:

– It adds value to products that would be discarded otherwise;

– It decreases transportation costs;– It allows business diversification;– It expands stocking possibilities.



• For the retailer:

– New and differentiated product; – It is a healthy product;– It has a longer shelf life.



Market

• Functional food (teas);• Cosmetics (soaps);• Food:

• Soups;• Bakery;• Candies;• Cereal bars;• Breakfast;


Raisins

• Other countries:– Raisins, table grapes, vinegar, wine;

• Bakery imports: 1,500 ton/year;• Brazil imports: 6,000 ton/year;


Business Model

Strategies for the Anchor Company:

1. Vertically Integrated Agricultural Production

2. Vertically Coordinated Agricultural Production

Own Production

Vertically coordinated

growers

Anchor Company

Retail

Foodservice

Industries

CONSUMERSPublic Irrigation Project

with Private Management


Fruit Grower Anchor Company (processing plant)

Buyers

- Fruit production to the anchor company as contracted;

- Use of fruits out of quality standards for in natura exports;

- Buying fruits according to established contract;

- Responsible for the fruit transport from the grower to the plant;

-Responsible for dehydrating and processing the fruit;

- Contracts for buying the dried fruits;

- Aid for maintaining dried fruit standards;

Players’ Role Definition


Different Alternatives for Implementing the Business Model

• Different strategies for the anchor company to obtain raw material:

1. Own discarded fruits;

2. Own discarded fruits + Growers discarded fruits;

3. Diversification of supplying sources;

4. Vertically integrated grape production for raisins;

• Strategies related to implement the processing utilities:

1. Dehydrated fruit (with or without the osmotic drying process);

2. Fruit Liofilization (with or without pulp production in cubs);

3. Raisins;


• Strategies for selling the dried fruits:1. Selling in bulks for food industry or wholesaling;

2. Selling in bulks for another dehydration fruit firm;

3. Selling in ready-to-eat convenient packs (with or without private branding);

Different Alternatives for Implementing the Business Model


Raisins

Grapes used for drying purposes:

•Discarded grapes from exportation;

• For an anchor company to produce 10 ton per day of grapes :

•10% discarded = 1 ton/day;

• Efficiency 25% = 250 kg of raisins / day;

• Minimum production suggested for implementing a plant is 100 tons/year.


Processing

DRIED FRUITS

Processing Cost

Inputs

Investments

GRAPHS

Processing Results

COST – Mango

Cash Flow

Consolidated analysis

SunLight Drying COST – Grapes

LOGISTICS

?

?

?

COST – Guava

Cost - Banana

SENSITIVITY ANALYSIS


Business Model Assumptions

• Processing Capacity : 6,000 kg/day;

• Annual working days : 300;

• Annual processing capacity: 1,800,000.00;

• Annual production : 324,000.00;

• Fruits: Mango, Raisings, Banana, and Guava;

• Average efficiency rate is 18%;

• Fruit price: “Agrianual” price list;

• By products value not included (animal food and organic natural fertilizing);

• Raisins are not dried at sun light;

• Sales in bulks and in packages;

• Gas energy for drying process;


•Tax generation:

• For 20 years: : R$ 4,318,444.65;

• Job generation:

• Processing plant : 60 direct jobs;

• Agricultural production : 1510 direct jobs;

•Other benefits:

• Business diversification for the region;

• Utilization of discarded fruits from exporting;

• Introduction of new technologies to the region;

Benefits for the Social and Economic Development


Raw Material: Composition and Fruit Costs

FRUIT UNITY VOLUME PRICE(R$)Guava kg 100,000.00 0.30Mango kg 700,000.00 0.40Banana kg 700,000.00 0.40Raisins kg 300,000.00 0.90

Source: PENSA* Petrolina Juazeiro region is chosen for the financial analysis. Exchange Rate: 1 US$ = R$ 1.85


Operation Plan

Operations PlanYields:

Process efficiency (%): 18.00

annual production : 324,000.00

Operation plan Product Destination (%) Unit Volume Quantity with packaging

Product description: kg

Mango (20Kg) 25.00 20,000 81,000.00 4,050.00

Banana (20Kg) 25.00 20,000 81,000.00 4,050.00

Raisins (20Kg) 20.00 20,000 64,800.00 3,240.00

Guava (20kg) 8.00 20,000 25,920.00 1,296.00

Mango (0,05kg) 7.00 0.050 22,680.00 453,600.00

Banana (0,05kg) 7.00 0.050 22,680.00 453,600.00

Raisins (0,50 Kg) 5.00 0.050 16,200.00 324,000.00

Guava (0,05kg) 3.00 0.050 9,720.00 194,400.00

TOTAL 100.00 324,000.00



Investment

ITEM Facilities

Equipments Working Capital TOTAL

Start up investment (R$) 1,766,178.75 1,194,879.34 273,652.37 3,234,710.46

Credit limit – fund raising (%) 80.00 80.00 100.00

Own Resources (R$) 353,235.75 238,975.87 - 592,211.62

Loan (R$) 1,412,943.00 955,903.47 273,652.37 2,642,498.84

Grace period (years) 0.50 0.50 0.50

Amortization length (years) 7.50 7.50 7.50

Total length (year) 8.00 8.00 8.00

Rebate (%) 50.00 50.00 50.00

Total Interest rate (%) 9.75 9.75 9.75

Monthly interest rate 1.0077830 1.0077830 1.0077830

Interest rate according to payment frequency

1.0077830

1.0077830

1.0077830

Number of payments 90 90 90

Loan payments (R$) (22,935.66) (15,516.75) (4,442.07) (42,894.48)



Cost Analysis

Total Production CostCOST TOTAL (R$) Average cost (R$/kg)

Operating costs 2,665,204.13 8.23 Fixed costs 1,018,215.09 3.14 Production Cost 3,683,419.23 11.37

Cost Composition

8.23

3.14

-

2,00

4,00

6,00

8,00

10,00

12,00

Average cost (R$/kg)

Fixed costs

Operating costs



Annual Revenues

Packaging Volume Selling Price FOB (R$/unity)

Total (R$) Cost(R$/unity)

Profit(R$/unity)

Mango (20Kg) 4,050.00

200.00

810,000.00

167.31

32.69

Banana (20Kg) 4,050.00

180.00

729,000.00

150.58

29.42

Raisings (20Kg) 3,240.00

160.00

518,400.00

133.85

26.15

Guava (20kg) 1,296.00

200.00

259,200.00

167.31

32.69

Mango (0,05kg) 453,600.00

1.60

725,760.00

1.34

0.26

Banana (0,05kg) 453,600.00

1.60

725,760.00

1.34

0.26

Raisins (0,50 Kg) 324,000,00

1.00

324,000.00

0.84

0.16

Guava (0,05kg) 194,400.00

1.60

311,040.00

1.34

0.26

Total Revenue (R$) 4,403,160.00


Financial Analysis

Financial Index

IRR 21.89%

Pay pack: 4.01 years



Financial Analysis

Cash Flow

(3,000,000)

(2,000,000)

(1,000,000)

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

YEAR

0

YEAR

1

YEAR

2

YEAR

3

YEAR

4

YEAR

5

YEAR

6

YEAR

7

YEAR

8

YEAR

9

YEAR

10

Net Cash Flow

Accumulated Cash Flow



Responsible Team

CODEVASFDirector of the area of Integrated Development and Infra-StructureClementino de Souza Coelho

Board Assistant of the area of Integrated Development and Infra-StructureAlvane Ribeiro Soares First Secretary of the area of Integrated Development and Infra-StructureGuilherme Almeida Gonçalves de Oliveira

PENSACoordinator: Prof. Dr. Marcos Fava NevesExecutive Manager of the Project: Luciano Thomé e CastroExecutive Manager of the Project: Ricardo Messias RossiExecutive Assistant of the Project: Vinicius Mazza da SilvaExecutive Assistant of the Project: Marina Darahem Mafud

Technical TeamResponsible Researcher: Eduardo Eugênio SpersContributor: Gabriela Fernandes Begiato

Translation: Central de Traduções


For further Information:

E-mail: [email protected]

Mail Address:Av. Pres. Vargas, 2001- Conj. 143/144, Jardim AméricaRibeirão Preto - SP - CEP: 14.020-260Tel.: +55 (16) 3911 6088

INTEGRATED AND SUSTAINABLE AGRIBUSINESS PROJECTS

1 investment opportunity in dried fruits in the valley of the são francisco river integrated...

Documents

dried fruit packing

fao slide

mature fruit

dried fruit global exports

dried fruit exports

francisco river web

dried fruits product

process dehydration