13.

PROFILE ON COTTON GINNING

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TABLE OF CONTENTS

PAGE

I.

SUMMARY

13-3

II.

PRODUCT DESCRIPTION & APPLICATION

13-3

III.

MARKET STUDY AND PLANT CAPACITY

13-3

A. MARKET STUDY

13-3

B. PLANT CAPACITY & PRODUCTION PROGRAMME

13-7

MATERIALS AND INPUTS

13-8

A. RAW & AUXILIARY MATERIALS

13-8

B. UTILITIES

13-9

TECHNOLOGY & ENGINEERING

13-10

A. TECHNOLOGY

13-10

B. ENGINEERING

13-11

MANPOWER & TRAINING REQUIREMENT

13-13

A. MANPOWER REQUIREMENT

13-13

B. TRAINING REQUIREMENT

13-14

FINANCIAL ANLYSIS

13-14

A. TOTAL INITIAL INVESTMENT COST

13-15

B. PRODUCTION COST

13-15

C. FINANCIAL EVALUATION

13-16

D. ECONOMIC BENEFITS

13-17

IV.

V.

VI.

VII.

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I.

SUMMARY

This profile envisages the establishment of a cotton ginnery with a capacity of

producing 15,000 tonnes of lint cotton per annum.

The present demand for the proposed product is estimated at 30,000 tonnes per annum.
The demand is expected to reach at 54,000 tonnes by the year 2017.

The plant will create employment opportunities for 34 persons.

The total investment requirement is estimated at Birr 7.08 million, out of which Birr 3.5
million is required for plant and machinery.

The project is financially viable with an internal rate of return (IRR) of 25.12 % and a
net present value (NPV) of Birr 5.19 million, discounted at 8.5 %.

II.

PRODUCT DESCRIPTION AND APPLICATION

Cotton ginning is the process of separating cotton seed from the lint so that the lint will
be baled and goes to textile industries for further processing whereas the cotton seed is
milled by oil mills to produce edible oil.

III.

MARKET STUDY AND PLANT CAPACITY

A.

MARKET STUDY

1.

Past supply and Present Demand

Cotton is a natural vegetable fiber with great economic importance as a raw material for
cloth. Cotton is still a principal raw material for the worlds textile industry although its
dominant position has been reduced by synthetic fibers.

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Cotton's widespread use is largely due to the ease with which its fibers are spun into yarn.
Cotton's strength, absorbency and capacity to be washed and dyed also make it adaptable
to a considerable variety of textile products.

Cotton ginning is a mechanical process used to separate the fibers of cotton from the
seeds. Before the invention of cotton gin, seeds had to be removed from cotton fibers by
hand. This labor intensive and time consuming process made growing and harvesting
cotton uneconomical. The invention of cotton ginning technology allowed the seeds to
be removed mechanically and rapidly from the cotton fibers, making cotton production
economical and leading to dramatic growth in the cotton industry.

The demand for lint cotton is derived from textile production. According to Textile
Sector Survey conducted by Chemonics International (INC), the annual lint cotton
requirement of spinning plants in Ethiopia, when operating at full capacity, is 59,876
tones. However, according to the Report on Large and Medium Scale Manufacturing and
Electricity Industries Survey, CSA, November 2006, spinning plants operate at about
47% of their capacity during 2004/05. Hence, demand for lint cotton would be about
28,142 tonnes in 2004/05.

Cotton is produced in Ethiopia by state farm, private commercial forms and peasant
farms. Cotton produced on the state farms and private commercial farms is processed in
ginners and supplied to spinning mills for commercial textile manufacturing, what that is
produced by the peasant farmers is, for the larger part, used by the hand loom sector. The
annual production of lint cotton is shown in Table 3.1.

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Table 3.1
PRODUCTION OF LINT COTTON IN ETHIOPIA ( TONNES)

Year

Production

Growth Rate (%)

1995/96

5,670

1996/97

5,324

-6.1

1997/98

5,458

2.5

1998/99

6,324

15.9

1999/00

10,382

63.2

2000/01

12,382

19.3

2001/02

16,097

30.0

2002/03

20,845

29.5

2003/04

20,052

-3.8

2004/05

21,118

5.3

Source:- CSA, Statistical Abstract of Ethiopia and Survey of the Manufacturing

and Electricity Industries. Annual Issues.

Production of lint cotton has exhibited a significant growth in the past 10 years. The
yearly average production between the period 1995/96-1998/99 was 5694 tonnes. During
the period 1999/00-2001/02, the yearly average production has reached to about 13,000
tonnes.

During the recent three years, i.e., 2002/03-2004/05, the production level

increased to about 21,000 tonnes. Despite the huge increase in production, current supply
is still lower than the current demand.

Current demand for lint cotton is estimated by assuming that spinning plants are currently
working around 50% of their capacity. Accordingly, current demand is calculated at
30,000 tonnes.

With regard to supply of raw cotton the Resource potential Assessment of SNNPR (IPS,
2006) indicate that there are a number of woredas which fulfill the agro-climatic

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conditions for growing cotton. These include Debub Omo, Bench Maji and Gamo Gofa
zones. If special attention is given for cotton production in these areas a good ground
will be created for the establishment of medium and large scale cotton ginning plants.

2.

Projected Demand

The future demand for lint cotton depends on the performance of the textile sector.
Currently, the sector is surrounded by diverse problems, the major ones being stiff
competition from legally and illegally imported fabrics and clothings.

There are, however, favourable prospects for the sector stemming from opening of the
markets of the United States and the European Union countries to Ethiopian textile
products.

The Ethiopian government has also taken various supportive initiatives,

including credit on easy terms and availing land for factory premises, to boost the foreign
exchange earning capacity of the sector.

Hence, when these factors are taken into account, it will be reasonable to assume that the
capacity utilization in the textile sector will increase to about 90% in the coming eight
years, giving rise to a corresponding expansion in lint cotton demand.

The future

unsatisfied demand for lint cotton is, hence, projected by assuming an annual capacity
utilization increase of 5% in the existing spinning plants (see Table 3.2).

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Table 3.2
PROJECTED DEMAND FOR LINT COTTON (TONNES)

Year

3.

Projected

Existing

Unsatisfied

Demand

Production

Demand

2008

35,000

21,000

12,000

2009

36,000

21,000

15,000

2010

39,000

21,000

18,000

2011

42,000

21,000

21,000

2012

45,000

21,000

24,000

2013

48,000

21,000

27,000

2014

51,000

21,000

30,000

2015

54,000

21,000

33,000

2016

54,000

21,000

33,000

2017

54,000

21,000

33,000

Pricing and Distribution

At present, most ginneries are integrated with cotton farms which provide ginning and
baling service at a charge ranging between Birr 35-45 per quintal. It is recommended that
the envisaged plant may charge Birr 40 per quintal.

B.

PLANT CAPACITY AND PRODUCTION PROGRAMME

1.

Plant Capacity

Based on the unsatisfied lint cotton demand obtained from the market study and the
possibility of producing cotton in the SNNPRS, the envisaged cotton ginnery will have
annual ginning capacity of 15,000 tonnes of lint cotton or equivalently treating 42,857
tonnes of raw cotton.

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2.

Production Programme

Considering skill development and market penetration, the plant is assumed to start
operation at 75% plant capacity in the first year, 85% in the second year and full capacity
(100%) in the third year and then after.

The envisaged ginning plant will operate 300

days a year, in single shift of eight hours a day. Operation build-up is shown in Table
3.3.below.

Table 3.3.
PRODUCTION PROGRAMME

Year

3 and above

75

85

100

11,250

12,750

15,000

Capacity utilization (%)

Operation (Tonnes)

IV.

MATERIALS AND INPUTS

A.

RAW & AUXILIARY MATERIALS

Raw material required by the cotton ginnery is raw cotton from cotton farms in the
region. Resource potential assessment study conducted by IPS indicated that there are
areas in the SNNPRS that have favorable climate and soil condition to grow cotton.
Availability of the raw material in the region is thus a good opportunity to establish
cotton ginnery.

Auxiliary materials for the ginnery are ropes and Hessian fabric for fastening the bales of
lint cotton and jute bags for packing the cotton seed. These auxiliary materials are locally
available. Annual requirements and costs of raw and auxiliary materials are shown in
Table 4.1 below.

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Table 4.1
RAW AND AUXILIARY MATERIALS & COST

Sr.

Description

Qty

Cost (000 Birr)

No.
LC

FC

TC

A. Raw Material
1

Raw cotton (tonnes)*

42,860

Packing material for lint (150 Lumpsum

975

975

350,000

2,100

2100

3075

3075

Sub-total
B. Auxiliary Materials
1

kg)
2

Jute sack (bag)

Sub-total
Total

3075

3075

* The envisaged plant gives only services on charge.

B.

UTILITIES

Utilities required for cotton ginning plant include electricity and water. Electricity is
required to furnish motive power for machinery and supply power for lighting units and
sockets.

The total consumption of electricity is estimated to be 160,000 kWh which

costs about Birr 75,840. Annual water requirement is estimated at 5,000 m3, which costs
about Birr 27,500. Accordingly, the total annual cost of utilities is estimated to be Birr
125,840.

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V.

TECHNOLOGY AND ENGINEERING

A.

TECHNOLOGY

1.

Process Description

Raw cotton from the storage hall is manually transported to an intake separator where
the cotton is screened to separate the cotton from foreign materials and then passed to a
hot gas drier to dry damp or wet cotton.

Dried and cleaned cotton is fed to gin stands containing gin saws that can separate seed
from the lint. Gin saws are steel disks approximately 0.037 inch thick and provide with
about seven teeth per inch of periphery.

Ribs of tough, highly polished iron are used in cotton gins to form grids through which
the saws may pass. Ginning ribs are spaced about 5/8 inch apart, so that the saws
carrying the lint may pass while the seeds are excluded.

After the seed is separated from the lint, it is discharged into self cleaning belt and then
into self cleaning blow pipe systems. The lint removed from the saws is carried by air
past to the condenser. From the condenser, the cotton drops into the press box, over the
bottom of which has been spread bale bagging.

As the cotton collects in the box it is

packed every minute or so by mechanical trampers. After enough amount has been
accumulated to make 150 kg bale, heavy press is applied by hydraulic press. The bale is,
then fastened by jute rope. The seed produced is bagged in jute sacks and dispatched to
oil mills. The project is environmentally friendly since it is solid process and doesnt
have any waste.

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2.

Source of Technology

The machinery and equipment required by the plant can be obtained from the following
company.

SRI DHANALAKSHMI C&R MILLS (P) LTD

GANAFAVARMM 522619 VIA CHILAKALURIPET
GUNTUR DIST (A.P) S. INDIA
Tel. 0091-8647-54921
0091 8647 54330
Fax 0091 8647-54925, 54027
E-main Spin@pol.Net.in
Cell: 09848105480

B.

ENGINEERING

1.

Machinery and Equipment

Machinery and equipment required to produce 15,000 tonnes of lint cotton or process
42,857 tonnes of raw cotton are presented in Table 5.1. The total cost of machinery and
equipment is estimated at Birr 3.45 million, out of which about Birr 3.2 million will be
required in foreign currency.

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Table 6.1
MACHINERY AND EQUIPMENT REQUIREMENT & COST FOR COTTON
GINNERY

Sr.

Description

Qty

No.

Cost (000 Birr)

LC

FC

TC

Separator

240

240

Dryer

240

240

Cleaning machine

295

295

Master extractor

650

650

Distributor

350

350

Feeders

As reqd

140

140

Gin stands

As reqd

65

65

Lint cleaners

320

320

Hot gas generator

160

160

10

Ribs,

doffing As reqd

80

80

Seed handling equipment (self clearing As reqd

180

180

mating

devices

and

devices
11

belts and blow pipes)

12

Condenser

160

160

13

Presses

320

320

FOB price

3,200

3,200

Freight, Insurance, Customs &Bank

250

250

250

3,200

3,450

Charges, Materials Heading Cost

Total CIF Land Cost

2.

Land, Building and Civil Works

The envisaged plant requires a total land area of 4000 m2, out of which 1500 m2 is a
built-up area. Considering average cost of construction of Birr 1500 per m2, the total cost
of buildings will be Birr 2,250,000. The average land lease value is taken to be Birr 1.00

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per m2. Thus, the expenditure of leasing 4,000 m2 of land for 80 years will be Birr
320,000. Therefore, the total cost of land, buildings and civil works, assuming that the
total land lease cost will be paid in advance, will be Birr 2.57 million.

3.

Proposed Location

Location of a plant is determined on the basis of proximity to raw materials, availability

of infrastructure and distance to potential market outlets. For the purpose of this project
four woredas, namely Arba Minch zuria, Amaro special woreda, burji special woreda,
and Boloso Sore woreda are identified. Considering fair distribution of projects among
SNNPRS woreda, Burji special woreda is selected. The envisaged plant will, therefore,
be established in Burji special woreda.

VI.

MANPOWER AND TRAINING REQUIREMENT

A.

MANPOWER REQUIREMENT

Manpower requirement of the ginnery is 34 persons, of which 15 are direct production

workers and 19 are administrative and supervisory staff.

Details of manpower

requirement and estimate of annual expenses for salaries is presented in Table 6.1.

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Table 6.1
MANPOWER REQUIREMENT OF GINNERY AND ANNUAL LABOUR COST

Sr.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

B.

Description

Req. No.

Plant manager
Secretary
Production and tech. head
Production supervisor
Machine operators
Electrician
Mechanic
Accountant
Store keeper
Cashier
Clerks
Laborers
Guard
Messenger & cleaner
Driver
Sub-total
Employees benefit (25% of
sub total)
Grand total

1
1
1
1
5
2
2
1
1
1
3
6
4
3
2
34

Training Requirement

The project do not require any training.

34

Monthly
Salary
2,500
750
2,000
1,300
500
600
600
800
500
500
400
300
300
250
400

Annual Salary
30,000
9,000
24,000
15,600
30,000
14,400
14,400
9,600
6,000
6,000
14,400
21,600
14,400
9,000
9,600
228,000
57,000
285,000

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VII.

FINANCIAL ANALYSIS

The financial analysis of the cotton ginnery project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period

1 year

Source of finance

30 % equity
70 % loan

Tax holidays

5 years

Bank interest

8.5 %

Discount cash flow

8.5 %

Accounts receivable

30 days

Raw material local

30 days

Work in progress

1 day

Finished products

15 days

Cash in hand

10 days

Accounts payable

30 days

A.

TOTAL INITIAL INVESTMENT COST

The total investment cost of the project including working capital is estimated at Birr
7.08 million, of which 23 per cent will be required in foreign currency.

The major breakdown of the total initial investment cost is shown in Table 7.1.

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Table 7.1
INITIAL INVESTMENT COST

Sr.

Total Cost

No.

Cost Items

(000 Birr)

Land lease value

Building and Civil Work

2,250.0

Plant Machinery and Equipment

3,500.0

Office Furniture and Equipment

50.0

Pre-production Expenditure*

524.2

Working Capital

442.1

Total Investment cost

Foreign Share

320.0

7,086.3
23

* N.B Pre-production expenditure includes interest during construction ( Birr 374.17 thousand ) and Birr
150.03 thousand costs of registration, licensing and formation of the company including legal fees,
commissioning expenses, etc.

B.

PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 4.48
million (see Table 7.2).

The material and utility cost accounts for

while repair and maintenance take 6.35 per cent of the production cost.

71.33

per cent,

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Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items

Cost

3,075.00

68.53

125.84

2.80

285

6.35

Labour direct

155.4

3.46

Administration Costs

129.6

2.89

Total Operating Costs

3,770.84

84.04

Depreciation

467.5

10.42

Cost of Finance

248.76

5.54

4,487.10

100

Raw Material and Inputs

Utilities
Maintenance and repair

Total Production Cost

C.

FINANCIAL EVALUATION

1.

Profitability

According to the projected income statement, the project will start generating profit in the
first year of operation. Important ratios such as profit to total sales, net profit to equity
(Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project.

The income statement and the other indicators of profitability show that the project is
viable.

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2.

Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity ( year ) is estimated by using income statement projection.

BE =

Fixed Cost

22 %

Sales Variable Cost

3.

Pay Back Period

The investment cost and income statement projection are used to project the pay-back
period. The projects initial investment will be fully recovered within 4 years.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 25.12 % and the
net present value at 8.5 % discount rate is Birr 5.19 million.

D.

ECONOMIC BENEFITS

The project can create employment for 34 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.47 million in terms of tax revenue.