VII.
Feasibility Study for Melon Subsector Plan:
Improved sorting, grading and boxing of melons for export
The comprehensive feasibility study of the MRRD selected business opportunity ‘Improving sorting, grading and boxing of melons for export’ for the melon subsector shall be presented in this section, covering both the economic viability and technical feasibility. The Economic Viability
analysis includes market analysis, competitive analysis, business justification, marketing plan, alternative financing options, realistic cost flow statement, cost benefit analysis, breakpoint point, and contribution of potential entrepreneurs. TheTechnical Feasibilityanalysis includes: demand and supply analysis, availability of required resources, availability of technical know-how, and alternative supply sources. There is a special focus on Balkh.
7.1 Business description
The Company will select the appropriate quality, size and variety of melons, which are suitable for export, from the market and/or directly at the farm gate. The melons will be treated pre-harvest on the farm to reduce melon fly prevalence. They will then be transported to export-markets in special corrugated boxes. The products will be the best quality of the varieties Arkani and Gentor. Adding a product label ‘From Afghanistan’ is optional.
Services Manual sorting, grading, storing and packaging
Organisational model Factory setting with some (embedded farmer) services off site (melon fly pre-harvest spraying and sorting).
End products Packaged melons for export.
Estimated employment Direct employment: 19
Indirect employment – embedded services, increased income though melon-fly prevention measures - about 45 farmers
7.2 Economic Viability
The Market / Overview
A Industry Analysis
Melons are another native crop and also another major subsector in Northern Afghanistan. They are sold fresh (predominantly) as well as dried. Afghan melons are sweet and are recognised for their “good inherent quality” and “opportunities in [the] long term”58 (Maani 2003). This important crop has suffered in recent months from the Balochistan melon fly (myiopardalis pardalina), which has spread from the borders of Uzbekistan and Tajikistan.59
Current production of melons (including watermelons) in Afghanistan is approximately 300,000 M T per year (see below). Production areas include Samangan, Jowzjan, Kunduz, Balkh and Takhar on both irrigated and rain-fed land. Current melon production levels in Balkh sit at around 90,000 M tonnes per annum across 7,000 hectares land. Kabul, Kunduz and Mazar are the main market hubs for trading melons. Export levels range (presently on average ~20 per cent). In 2003 these were shown to be ~$0.5 million60. There are a total of 38 varieties of melon. In the North of Afghanistan, the melon season stretches from July until the end of September. Kabul is an important market for melons from mid summer to early autumn as is Pakistan. Like common vegetable crops, melons compete in Kabul’s market with Pakistani imports but later in the season this trend is reversed.61 Presently only two products are sold: ‘fresh’ (long, medium and short shelf life) or dried melon, and there is limited processing activity taking place in –country.
Value addition activities in Afghanistan include (basic) manual sorting, and grading at the market place. The traders contract semi skilled labourers to do this work. These activities take place in situ in the open market. Meanwhile, some farmers’ families (women) carry out melon drying at the village level. These activities seems to be limited and motivated by ‘increasing the lifespan’ of the melon products. Aside from basic sorting at the auction site, no further value addition (processing, packaging – ‘traders just load them onto trucks’) is presently taking place in Afghanistan.
A high incidence of melon fly has both increased spoilage rates pre and post harvest, as well as put off many potential clients “don’t bother buying melons, they are all infected with melon fly”. This is being looked into by ASAP, FAO and AKF. If this problem can be tackled adequately, there is significant opportunity to improve transport packaging of melon, brand melons from this part of the country and certify melon as ‘melon fly free’, and to market both fresh melons (within and outside of Afghanistan – particularly long-lasting arkani variety), and melon derivatives such as dried melons, melon syrup and melon juice.
58
Maani 2003 59
Cited in MRRD Literature Reviews 2007. 60
OTF 2006. 61
The SWOT analysis provides a comprehensive overview of strengths, weaknesses, opportunities and threats in the melon subsector (with a focus on Balkh).
SWOT-analysis MELON SUBSECTOR/BALKH PROVINCE
STRENGTHS OPPORTUNITIES
- Competitive product in world market, especially the Arkani variety which lasts several months - Afghan product is well known in the region,
particularly in India
- Suitable climate in Balkh, which is a large production of a variety of melons (38 varieties, 90, 000 MT / annumwithapproximately 500 tonnes traded / day between July and November)
- Existence of a domestic market and big markets in proximity (Kunduz, Kabul and Herat)
- Major investments in farm-level technical assistance in melon subsector in Balkh (ASAP)
- Eradicating melon fly and utilizing preventive means
- Quality control and certification
- Packaging with labeling, including melon fly free - Investment in processing facilities, for juice,
syrup
- Drying and packaging
- Direct transport to export markets - Branding Afghan melons
- Extending the sales season by creating better storage facilities
- Growing different and unique varieties (by genetic alterations? Or introducing new variety to Afghanistan?)
- Improving market linkages?
- Targeting other export markets (high value) by meeting international certification standards and improved packaging)
WEAKNESSES THREATS
- Occurrence of melon fly and inadequate means to detect and prevent
- Lack of quality control
- Lack of value addition, packaging and processing
- Lack of a brand
- General low level of technical knowhow and marketing at farmer and trader-level - Lack of organization by farmers and melon
traders
- No direct transportation to main export markets - Lack of professional (‘honest’) business conduct - Lack of cold storage facilities
- Seasonal market
- Competition from regional markets - Competition on price?
- Melon flycan destroy domestic as well as export market, when consumers lose faith in product
B Market Analysis
Major Afghan markets for melons include Kabul, Mazar and Kunduz. Melons are currently sold internally (80 per cent) and abroad (20 per cent), mostly as fresh melons although some (informal) drying is done. There is demand for Afghan melons in traditional markets such as India but problems with melon fly, ‘perishability’ (usually melons can only withstand 2-3 days but some varieties can last 7-8 months (Arkani)), standards and certification constrains their export despite potential interest from buyers. Transporting is also difficult through Pakistan but there is a traditional market in India.62
Sample supply chain reports describe melons traveling to Kabul and onto Pakistan.63 Research indicates small traders from Kunduz / Mazar transporting these to Kabul. Traders unload at Kabul’s specialized wholesale melon market and Kabul traders then sort and reload onto trucks (no packing) headed to Peshawar. In Peshawar, melons are unloaded and sorted into different piles (by size). Melons are auctioned by pile. Sometimes Indian middlemen are present and buy in Afghanistan.
C Co mpetitor Analysis
International competitors (includes watermelon) include China (66 million MT), Turkey (4.3 million MT), Iran (2 million MT), Central Asia (0.8 million MT), and Pakistan (0.4 million MT). Types of melons sold include fresh and (some) dried. Afghanistan’s melons have a good historical / traditional reputation in India for their sweet taste and are much coveted in the regional market. Export beyond the region is not cost efficient.
D C usto mers/markets Kabul/direct export
Afghanistan’s melons are sold in Kabul, Kunduz, and Mazar within Afghanistan. From Kabul, a small percentage is directly exported to India via Pakistan (20 per cent). Average melon prices in Afghanistan are indicated below. Prices in Pakistan and Delhi are quoted at seven times the wholesale price in Mazar ($0.7 / kg).
Average prices of melon varieties in Mazar market Melon variety Type of melon (Av.) Farmgate
price (Afs / 7kg) (Av.) Wholesale price in Mazar (Afs / 7 kg) (Av.) Margin (Afs / 7 kg) Arkani Grade 1 30-52 35-52 3-5 Arkani Grade 2 20-30 23-32 3-5 Chedree Grade 1 45-50 35-50 3-5 Chedree Grade 2 22-40 24-45 3-5 62
India has long favoured Afghan melons. Stories tell of the first Murghal Emperor Barbur requesting melons to be sent from Afghanistan to Aghra and Delhi.
63
Melon variety Type of melon (Av.) Farmgate price (Afs / 7kg) (Av.) Wholesale price in Mazar (Afs / 7 kg) (Av.) Margin (Afs / 7 kg) Lo beiee Grade 1 30-55 32-52 3-5 Lo beiee Grade 2 20-35 22-36 3-5
E Demand and supply analysis
As stated earlier, current production levels have been estimated at 300,000 MT / annum (including watermelons). In Balkh, this is quoted to be approximately 90,000 MT / annum (melons only), and 500-700 tonnes / day during the season July-Nov. Of these, at the moment up to 50 per cent are afflicted with the melon fly. Appendix 2 provides the approximate proportion of production district-wise.
Within Afghanistan, there is indicated to be a surplus of melons. Export has been impacted by melon fly prevalence. Demand for melon-fly free melons in India is relatively high. Other markets are too costly to reach (although Dubai would be a second market of choice if cheaper air freight could be secured).
F Bus i ness Justification
The melon subsector is hampered by poor sorting / grading, poor packing and lack of cool storage. This is causing the following:
• Melon Sorting / grading: “Services are basic and quality control does not formally exist” leading to increased spoilage and spread of the melon fly
• Value addition and packaging: “Absence of professional packaging” leading to increased spoilage and spread of the melon fly
• Storage facilities: “Warehouses and cold storage are lacking” leading to increased perishability
Financial Pla n64
A Capital requirement Owners Equity: 70,000 US$ MRRD grant: 30,000 US$
To tal: 100,000 US$
B Capital Investments
Land: 14,666 US$ paid in 7 terms 1/3 of costs (44,000 US$) allocated to melons Building: 11,666 US$ 1/3 of costs (35,000 US$) allocated to melons Equipment:
Transportation: 9,000 US$
1/3 of total costs (27,000 US$) allocated to melons
Packaging material: 3,840 US$ Generator:
Chemicals: 1,008 US$
To tal 40,180 US$
C Financing options (and contribution of potential entrepreneurs) Please see A. No loan will be required.
D Landed costs
7 MT truck 8 AFA per kg 56,000 AFA 1,120 USD
64
Costs of transportation to Delhi 1,100 USD
5% import duty65 111 USD
To tal costs FOB Delhi 2,231 USD
Landed costs Delhi: 0.32 US$/kg
E Operations Forecast
From half August until half November - 4 months To tal shipments 4 trucks a week to Delhi with 7 MT each
Income Statement
US$ US$
Sales revenue 268,800
Costs of goods sold
Raw material 17,920 Costs of transportation 52800 Fuel costs: 5,400 TO TAL 76,120 Gross Profit 192,680 Expenses Insecticide 252 Rent 0
Utilities (water, electricity,
fuel) 24,000
Salaries 16,400
Other labor costs 3,000
Deprecation 4,059
TO TAL 47,711
Net Income before Tax 144,969
Less: Income Tax 28,993.8
Net Income 115,975
F Cash Flow and Break-Even Analysis
Fixed Costs / (Sales Price – Average Variable Costs) 47,112/(0.6 – 0.32)
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Break-Even Point 170 MT
Cash flow
Overview $ $ $
year 1 year 2 year 3 Opening balance 70,000 179,992 297,185 Grant 30,000 0 0 Collection from sales 268,800 268,800 268,800 To tal receipts 368,800 448,792 565,985 Payments Purchase of land 6,286 6,286 6,286 Building 35,000 0 0 Purchase vehicle 27,000 27,000 0 Label machine 0 10,000 0 Payment to farmers 17,920 17,920 17,920 Transportation 52,800 35,200 23,467 Fuel costs 5,400 10,800 10,800 Labor costs 19,400 19,400 19,400 Operational expenses 24,000 24,000 24,000 Other expenses 1,002 1,002 1,002 To tal payments 188,808 151,608 102,874 Balance 179,992 297,185 463,110
G Cost benefit analysis *CBA)
Please refer to all of the above for preliminary cost / benefits. A full CBA will be included in the Draft Final Report / Business Plan.
Marketing Plan
A Targeting Strategy
The Company will strive to develop long-term relationships with buyers in export markets, over time sorting out the better customers and creating a customer relationship that is based on mutual trust and continuously delivering good quality products, both timely and according to the
requirements.
The Company will consistently put efforts into business development, in order to attract new customers, over time ceasing to work with bad customers, that cannot or will not issue payments according to the given time schedules.
The Company will primarily service export markets, in particular India where the Afghan products already have a reputation with Arkani (two varieties) and Gin Tor (one variety).
The potential of other markets will have to be investigated. B Service Strategy
The Company will firstly aim at good quality products, delivered timely and packaging according to the customers’ specifications.
C Pricing Strategy
The Company will continuously monitor prices of competition in Mazar-e Sharif, Kabul, India, United Arab Emirates, Pakistan and US products in order to maintain a high level of
competitiveness, but will not compete on price alone. D Advertisi ng
The Company will use direct sales contact with potential new clients through a representative agency in Delhi. The company will use other sales tools, like discounts for large quantity orders, and/or special price offerings off-season when appropriate.
E Sal es Forecast
Target a Total 4 trucks a week to India with 7MT per truck 28 MT/week
To tal season 4 months 112 MT/month
Wholesale Price Delhi: between 0.25 - 1.26 USD/kg
Market prices have to be checked regularly, when sales prices drops below landed costs, no goods will be shipped.
Weekly Sales revenue average 0.60 US$/kg 67,200 US$
7.3 Technical Feasibility
A Manag eme nt Management
Managing Director/Business Owner: Haji Hassan
End responsible for Overall Management, Finance, Marketing & Sales, and Human Resources.
Manager: A local manager will have to be recruited for who will be managing the day to day operations on the different sites, and have overall control over the staff.
Financial Administration
The company will do the financial administration in the main factory. Accounting software (QuickBook, etc.) will be bought for the financial administration. The company will receive technical assistance with the implementation of a professional computerized financial administration and the use of accounting software from MRRD. At the main factory Internet-connection will be present and at least one PC for the administration.
Administrative and financial controls - Bookkeeping system
- Accounting system
- Accounts receivable and account payable management system
B Availability of required reso urces (technical, infrastructure and equipment)
(i) Infrastructure
The businessmen have selected a site in Mazar for the factory unit. This site has access to water and
electricity. This site will be part used for this business (one third of the year).
(ii) Equipment / materials
The following would need to be purchased including: Reusable Wooden boxes
122x122x90 cm / 2cm thick wood ‘good’ quality 4,000 Afs / piece Navid Mashreqiwal Co.
Contact person: Eng. Abdul Haadi Phone: 0799 372 678
Chemicals
Insecticide: Spinosad (biological) / Mazar based company / cost 1 USD/per week/per ha (iii) Technical / Business Assistance
The business does not depend on this assistance to be ‘operational’. The company will receive additional management, finance, marketing and technical training / support (the training support / plan is described under Appendix 5).
Management support: The Company will receive management support from a Kabul based consultant during the first year of operations which will be paid for by MRRD. The monthly meetings will be focused at Coaching, mentoring, troubleshooting, support service contract management, HR management, monitoring and evaluation. (Total cost = $21,600)
Financial support: The Company will receive Accounting /Quickbook training and assistance from a Kabul based Consultant in the establishment of a Financial Management System. (Total cost = $3,800)
Marketing and Business training: The Company will receive a three-day marketing and BDS training from a Kabul-based BDS provider which will be paid for by MRRD. Modules including marketing, business development, supply chain management and export. (Total cost = $1,800).
Technical support: The Company will receive in total three days of technical assistance from a Mazar-based expert which will be paid for by MRRD. The training will focus on on-farm melon-fly prevention measures and post-harvest pre-cooling treatment. (Total cost = $1,500)
(iv) Raw Materials
Melons: As stated earlier, during the season (July – October), approximately 500 tonnes of melons are traded a day in Mazar (fresh). The businessmen have links to farmers in Aqcha and Dehdadi districts and will procure their melons directly from these locations.66 The Company will form formal contracts with the farmers. The Company intends to ‘process’ approximately 28 tonnes of melon a week during the season for the two selected varieties – Arkani and Gin Tor - (mid Aug-mid Nov).
66
References
ADB, Landell Mill Limited March: ADB 2007 Favre, R.,CNFA Carpet Sector Review: CNFA 2005
Maani, University of California, Prioritising Export Opportunities for Horticulture in Afghanistan: 2003
McCord, M.,An Analysis of Business Opportunities within Afghanistan’s Carpet Sector, 2007 OTFStrategy and Action Plan for Afghanistan’s Dried Fruit and Nuts Sector: OTF 2006 OTFStudy on Afghan Carpet Sector:OTF 2006.
UNDP / ALTAI Consulting Market Sector Assessment in Horticulture (Phase 2-3, Feasibility studies and Business Plans), Altai 2004
Appendix 1: Notes on Key Resources in Mazar and Balkh
[1] Electricity in Mazar
Local consultation in Mazar with traders, shopkeepers and other businessmen indicate that Mazar city currently has approximately 5-6 hours of city power a day (in the evening). This is be provided by Uzbekistan in an agreement with Balkh. In the following 6 months, city power is expected to run in the industrial park in Mazar during daylight hours (according to businessmen / authorities). For operating factories it is recommended to use a generator. A large generator is estimated to cost ~ $10,000 - $20,000 per generator with running costs of $12,000 / annum.
[2] Trucks
Local consultation with Mazar and Kabul businessmen indicate that truck costs are $27,000. [3] Land
Local consultation with Mazar businessmen during the project indicate three types of land that is available in Mazar for purchase with varying degrees of services and costs as described below:
Land cost / jerib
Resources Land location Availability Other comments
$400 None New government
subsidized land near Mazar
Businessmen may register to buy with local government. No confirmation on purchase. Prioritized for carpet sector $30,000 Water / power (see above) In various parts of the city
Can be difficult Drainage may be a problem
$44,000 Water / power (see above)
New industrial park Available
[4] Femal e labour
Female labour is available in both the rural and urban areas in Balkh. However, local discussions during the research indicate that women in more remote rural areas in Balkh would be less keen to work in a factory setting. In general however, on the outskirts of more urban areas67 women would be both permitted and keen to work in a formalized factory setting, particularly where women can work together and are supervised by a female line manager.
[5] Factory buildings
67
The urban population is concentrated in Mazar, Khulm, Balkh, Daulatabad and Sholgara. Statistics here are drawn fromProvince of Balkh. A Socio-Economic and Demographic Profile. Household Listings 2004. UNFP
