COMMUNITY BASED LIVELIHOODS RECOVERY PROGRAM (CBLRP)

FOR EARTHQUAKE AFFECTED AREAS OF AZAD JAMMU AND KASHMIR

AND NWFP

CBLRP-UNIDO

INVESTMENT OPPORTUNITY PROFILE

FOR
DAIRY FARM
IN
NWFP

SEPTEMBER 2007

SUBMITTED TO
AYESHA KHAN
CHIEF TECHNICAL ADVISOR
Community Based Livelihood Recovery Program (CBLRP)
United National industrial Development Organization (UNIDO)

BY
Sardar Shahid Farid
Chartered Accountant

Disclaimer

All material included in this document is based on data/information gathered from various sources and certain
assumption. Due care and diligence has been taken to compile this document. The document may contain
human, mechanical error or non accuracy of the information at the source. No liability for error, or omission or
unintentional misrepresentation will be accepted. We reserve the right to make correction and changes
wherever desired in this document or its subsequent versions.
1. PROJECT EXECUTIVE SUMMARY

1.1 PROJECT BRIEF

Dairy production is an all-inclusive activity, related to animal care, reproduction, feeding,
and management. It is defined as all those aspects and activities relating to raising of dairy
animals during their various phases of life to get wholesome milk. The proposed project is
to be in the vicinity of Manshera.

Livestock production is an integral part of Pakistan's agriculture sector and plays a vital role
in the national economy. At present, livestock contributes about 49.1% to the agricultural
sector and 11.4 per cent to the GDP. Its net foreign exchange earnings in 2003-04 were 53
billion, which is about 11 percent of the overall export earnings of the country. The role of
livestock in the rural economy may be assessed by the fact that 30 to 35 million of the total
rural population is engaged in livestock farming, having 2 to 3 cattle/buffalo and 5 to 6
sheep/goats per family deriving 30 to 40 per cent of income from it

The main product of the dairy farm will be milk which will be sold on daily basis, the
production of milk will be 156,300 Liters, and the annual sales will touch Rs 4 million with
50 adult animals.

The initial total investment is of Rs 5,128,691. The Project can be completed in 03 months
time. The best quality animals are readily available in the Mansehra region and can be
transported to the project easily. The market is readily accessible. Eight persons will be
employed at the farm, while more jobs will be created indirectly with the farm.

1.2 FINANCIAL SUMMARY

• Sales Rs 4 Million per annum
• Gross Profit Margin 36%
• Net Profit Margin before tax 12%
• Internal Rate of Return 51%

Foreign collaboration sought Joint – Venture Management expertise

Loan Technical expertise
Market access Marketing expertise
Sub contracting Technology transfer
Buy – back arrangement Joint R&D
Equipment purchase Other :-

Studies Available Feasibility study Project description

Other Specify

Date: 25 October 2007

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2. PROJECT RATIONALE

Dairy farming is an agro-based project, which comprises of two aspects: dairy production
and dairy technology. Dairy production is an all-inclusive activity, related to dairy animal
care, reproduction, feeding, and management and is defined as all those aspects and
activities relating to raising of dairy animals during their various phases of life to get
wholesome milk. Dairy technology relates to all aspects of processing milk to convert it into
various products. This conversion of milk into product is practicable only if it is
economically viable. Dairy animals, mainly buffaloes and cows are purchased from the
animal markets or breeders located in peri urban areas of cities like , Islamabad, Lahore,
Okara, Sahiwal, Sheikhupura, Bahawalpur, Multan, Sargodha and Faisalabad. Dairy
animals are fed on protein sources (concentrate) along with plenty of green fodder. Animals
are milked twice a day i.e. morning and evening. The milk is sold at the farm or may be
directly sold in the urban market. The milk price varies according to its quality and the
season. Buffalo milk is sold at Rs 24-26 per liter at the farm gate and Rs 20-22 in the urban
market. Cow milk is sold at Rs 21-23 per liter at the farm and Rs. 28-30 in the urban
markets. The demand and supply both have shown increasing trend over the last decade.
The demand for good quality milk is high. The table below shows this trend.

Population of livestock (million)

Species 2002-03 2003-04
Cattle 23.3 23.8
Buffalo 24.8 25.5
Sheep 24.6 24.7
Goats 52.8 54.7
Production of Livestock Products
Product
Milk (million tones) 27.031 27.811
Beef (000, tones) 1034 1060
Mutton (000, tones) 683 702

Dairy farming is considered the backbone and mainstay of economy. It provides raw
material for food & leather industry. The produce is a major source of food, i.e. milk and
meant. The byproducts of dairy farming such as farmyard manure (FYM) are not only
environment friendly but also provide valuable earnings. Sizeable foreign exchanges
earnings are also possible through export of its various products. The project is largely
labour intensive thereby providing ample opportunities for human resource employment.

In the rural North of Pakistan this sector is unorganized and unaware of basic farm
management practices. Although dairy farming can be rewarding in several ways the
management of a dairy farm is a highly challenging job.

3. MARKET OPPORTUNITY

Pakistan is the fifth largest milk producer in the world. Milk production in year 2003-04
was about 27.81 million tons. Raw milk is used for drinking and tea making purpose. In
rural areas, milk is used to make desi ghee (clarified butter) , yogurt, whey (lasi) and butter.
Rural as well as the urban households are the major consumers of milk.

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 Existing livestock population in NWFP is 18.3 million. The provincial economy is primarily
agrarian with a limited industrial base. General studies and surveys indicate that this project
can obtain a good market response and healthy earnings. The overall market value of
livestock in Pakistan in 2003-04 is as follows

The daily milk intake of Manshera and surrounding areas is0.020 million liters respectively.
The demand for milk increases during summers as the consumption of whey (lassi) rises
due to hot weather. Ghee is obtained by heating the milk to evaporate water and removing
the curd. Liquid butter oil with 93% fat content and a much smaller volume results. It is
easy to store and resists spoilage even at tropical temperatures. The ghee from buffalo milk
is white and that from cow milk yellow. Dahi or curd (similar to yogurt) is another popular
product. If not refrigerated it must be consumed within 24 hours. Khoya is a popular sweet.
It is prepared by condensing the milk to about 20% fat. Sugar and some spices are added in
order to obtain desirable flavors. It is a high value product however it also has a relatively
short shelf life. Milk processing companies use milk as a raw material to formulate different
types of milk i.e. pasteurized milk, UHT treated milk, condensed milk, skim milk & milk
powder, etc. Different value added products like yogurt, ice cream, butter and cheese are
also prepared from the raw milk. The processed milk quality and market share has increased
considerably over the last five years and provides numerous opportunities to the dairy farm
investor to benefit from it.

4. BUSINESS PLAN
The good quality lactating adult animals will be purchased; their milk giving ability will be
optimized by giving them quality feed and taking proper care. The profitability of the
project will be maximized by selling both to the end consumers as well as to the
wholesalers.

4.1 PRODUCT SALES

The product for sales are given for ready reference as well the expected sales at full capacity
is also worked out in the table below.

Milk/Cow/Day 14 Ltrs
Milk/Buffalo/Day 10 Ltrs
Wet Cows as % Total no. of Cows 80%
Wet Buffalos as % Total no. of Buffalos 70%
No. of Days in Year 365 Days
Sale Price of developed progeny
Cow 60,000 Rs.

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 Buffalo 70,000 Rs.
Female calf (cow) older then one year 20,000
Female calf (buffalo) older then one year 20,000
Sale Price/Culled cow 30,000 Rs.
Sale Price/Culled Buffalo 30,000
Sale Price/Low yielder cow 16,000 Rs.
Sale Price/Low yielder buffalo 20,000
Sale Price/Male calf 4,000-5,000 Rs

Sales at 100% are Rs 4 Million.

Liter of Sale
Production milk per price
Non of milk animal per annual Qt of per
Animal lactative lactative per days day milk liter Amount

cows 5.00 30.00 285 14 119,700 26.00 3,112,200

buffaloes 3.00 12.00 305 10 36,600 22.00 805,200

156,300 3,917,400

Sale male calves 17.00 4,859 82,600

Total 4,000,000

4.2 RAW MATERIALS

The main material required at farm are cattle feed, Dry & Green roughage,
water and medicines. The cost of feed are detailed below.

Daily Feed Requirements

Animal Daily Requirement (kg) Cost/kg Amount

Cow
Green Fodder 40.00 0.10 4.00
Dry Roughage 5.00 2.00 10.00
Concentrate 3.18 10.00 31.78

Total 45.78
Buffalo
8
Green Fodder 50 0.10 5.00
Dry 5 2.00 10.00
Concentrate 3.18 10.00 31.78

Total 46.78

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4.3 PRODUCTION PROCESS

Dairy animals, mainly buffaloes and cows are purchased from the animal markets or
breeders located in peri urban areas of cities like , Islamabad, Lahore, Okara,
Sahiwal, Sheikhupura, Bahawalpur, Multan, Sargodha and Faisalabad. Dairy animals are
fed on protein sources (concentrate) along with plenty of green fodder. Animals are
milked twice a day i.e. morning and evening. The milk is sold at the farm or may be
directly sold in the urban market. The milk price varies according to its quality and the
season. Buffalo milk is sold at Rs 20-22 in the urban market. Cow milk is sold at Rs. 18-20
in the urban markets.

4.4 DISTRIBUTION CHANNELS

It is suggested that milk will be sold on farm door through contractors, gawalas or people
around that area or may be pasteurized at farm by the farmer and then deliver it to the near
by city. Following are some of the target clients for a dairy farmer.

1. Local people
2. Gawalas
3. Milk collection companies
4. Contractors

4.5 HUMAN RESOUCE REQUIRMENT

One farm manager and seven workers are required at the farm, their salaries are given
below

Description No. Salary/month/Person Annual Salary (Rs)

Farm 1 10,000 120,000
Manager
Workers 7 3,000 252,000
Total 8 372,000
Labor Cost

5. PROJECT FINANCIALS

5.1 OPERATIONAL DATA

The dairy farm will house 50 animals in the first year, however if expansion is required the
total number will be increased to 100 animals from own production in later years.

5.2 FIXED COST

The initial investment in terms of capital cost is Rs 4,355,011 and includes the items
detailed below.

ASSEST Total Cost

(Rs)

Building/Infrastructure 956,161
Machinery & equipment 191,850
Animal Cost 3,207,000
Total Capital Cost 4,355,011
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5.3 WORKING CAPITAL

The investment in the initial working capital is of Rs 292,680

Raw material inventory 72,680

Upfront land lease rental 140,000
Cash 80,000
Working Capital Requirement 292,680

5.4 OVERHEAD COSTS

In the first year following overhead cost are estimated.

Admin and Selling Salaries 372,000

Misc Expenses 43,000
Land lease Rent Expenses 540,000
Office expenses 7,440
Professional fees (legal, consultants, etc.) 14,180

976,620