4.1 Shea nut processing in Mali
In Mali, the Franc CFA is the accounting currency with F CFA 50
equal to I French Franc. As the discounting rate (long-term bank deposits), 10 %
Table 13 provides an overview of the costs and results of the
improved process compared to the traditional process for shea butter extraction.
The assumptions for the improved (KIT) process are based on the experiences
gained so far with the GTZ/GATE/DMA project. The figures are based on field
experience in Mali and can be interpreted in the following way:
Table 13: Assumptions for Shea Nut
Processing in Mali (per year in F CFA, unless stated otherwise)
For the GTZ/GATE project, land is made available free of costs
by the village and as with the traditional process - can not be accounted for.
The building needed is a small traditional one with bricks and a roof of
corrugated iron. It is to last for the whole project period but has no value
The machinery for the KIT process, which for all major parts is
expected to last for 10 years, consists of a hydraulic press, an expel stand,
oven parts, a few buckets, mortar and pestles. The equipment for the traditional
process includes mortar and pestles, basins, calabashes, crushing stones and
other traditional material.
As current investments, the traditional equipment has to be
renewed every year. For the KIT machinery, a new hydraulic jack has to be
accounted for after 5 years.
Production costs are first based on the maximum capacity of the
processes, assuming 300 working days per year. For both processes, shea nuts are
the only rawmaterial, costing F CFA 30 per kg on average. The KIT process needs
hydraulic oil (10 lifers per year at F CFA 1000 per 1), an annual technical
check-up of the jack and some spare parts (rubber seals, a pump valve). Since
fuel wood has little commercial value in rural areas, its price was calculated
as the working time needed to collect it (for the KIT process: 2.5 working hours
per production day: for the traditional process: 4 working hours per production
day). The wages applied are the same as for the actual oil processing, in which
5women participate with the KIT process and 4 in the traditional one. Marketing
costs have not been calculated, since the weekly visit to the market is a social
event in any case.
The production programme and sales give an indication of the use
of the equipment as a percentage of its maximum capacity. The actual yearly
production, however, is determined by the availability of rawmaterial, which can
- in the case of wildgrowing shea nut trees - be zero in one year and high in
For the KIT process, it was assumed that 50 women form a group,
in which each woman has on average 50 kg of shea kernels collected. Processing
50 kg of kernels per day, this raw- material supply would last for SO working
days or 16.6 % utilization of maximum capacity. Assuming an average shea butter
recovery of 38.5 %, the process would give 962.5 kg of shea butter per year.
For the traditional process, the 4 women in the group provide
together 200 kg of kernels to be processed, which would last for approximately
10 (8 hour) working days or the equivalent to 20 days with 4 actual working
hours. The percentage of shea butter recovery was assumed to be 25 % on average,
giving 50 kg of shea butter per year. In both cases' the price of the shea
butter is F CFA 300.
For the working capital requirements it has to be considered
that shea nuts are stored traditionally by rural women as a kind of bank
account'´ for which, however, no interest can be calculated. For the KIT
process, hydraulic oil and spare parts should be stored for a full production
As far as the source of finance is concerned, it has to be
mentioned again that rural women not only have very little capital to invest,
but also have difficulties in getting a credit. In the GTZ/GATE project, the
total initial investment (building, machinery and equipment) is therefore
subsidized with 50 % of its cost (= F CFA 275 000). For the feasibility
calculation, however, the subsidy is normally treated as part of the equity
capital and has no influence on the profitability of the project.
On the basis of the assumptions described above, which are
termed standard cases" below, the results for both processes are
summarized by the calculated internal rates of return (IRR). These are for:
- KIT process 21.91 %,
- traditional process - 8.97 %.
These results mean that the traditional process, quite clearly,
is not viable in financial terms, if the critical variables (shea butter
recovery rate and wages for processing) are realized as assumed. In practical
terms, these results mean that the-women involved in the traditional process are
not able to realize the assumed wages, i.e. they work in fact for less money per
hour (compare sensitivity analysis below). However, since there are very few
employment opportunities for women in rural areas of Mali, even this low income
The "standard case" of the KIT process, on the other side,
produces a positive IRR of roughly 22 %. This means that the financial return,
which can be expected from an investment in this process, is considerably better
than a bank deposit (assumed as 10 %). The figure also means that the expected
return is quite acceptable compared to what is normally expected from an
investment into manufacturing industries in developing countries. Depending on
the risk he takes (especially on the marketing side), a private investor would -
as a rule - feel fairly safe, if his investment can be expected to produce about
double the discounting rate (in this case 20 %). Since marketing of shea butter
appears to pose no problems in Mali, the calculated IRR of about 22 % can be
seen as well promising.
To illustrate the practical implications of the subsidy in the
case of the GTZ/GATE project, it is possible (but not sound in the financial
analysis of the process) to calculate the IRR only on the basis of the equity
provided by the village: Subtracting the subsidy from the total investment, but
still having the same cash inflow from sales, the IRR would be more than 50 %.
This figure, of course, would indicate a very attractive return for the women
As shown in the summary sheet for shea nut processing in Mali
(Figure 22), variations of the critical variables produce quite different
results for the profitability of both processes:
Figure 22: Summary Sheet, Shea Nut
Processing in Mali. Graphs are approximations.
Figure 22, A, indicates the expected IRR in relation to the rate
of shea butter recovery. For the standard case of the traditional process, an
average recovery rate of 25 % was assumed, which results in a negative IRR.
Assuming 30 % recovery for the same process, the IRR would be just over 13 %
(i.e. positive). A recovery rate of about 27% would make the IRR zero; i.e. the
process would at least not produce financial losses (i.e. a negative,
discounted, cummulated net cash flow).
For the KIT process, the same value (IRR = 0) starts with a
recovery rate of about 25 %. Since the investment in this case is relatively
big, however, so-called opportunity costs should be considered (at a discounting
rate or IRR = 10). The KIT process, then, becomes financially interesting, if
recovery rates of 32 % and more can be realized. At a recovery rate of 42 %,
which is reportedly about the best possible, the IRR would be about 28 %.
Figure 22, B, indicates the expected IRR in relation to capacity
utilization (percentage of maximum capacity at 8 working hours per day and 300
working days per year). As mentioned earlier, the bottleneck factor for the
utilization of the equipment might be the availability of the rawmaterial, i.e.
how many shea nuts the women can collect on average. For both processes, 50 kg
of kernels per woman per year had been assumed as the standard case. However;
the collected amount of nuts is reported to be higher in many cases. On the
other hand, less raw material might be available in years when shea nut trees
bear only little fruit. A long-term deterioration of this situation due to a
shortage of shea nuts (possibly in consequence of ecological problems such as
desertification) has not been considered for the analysis, but might be of
importance in the future.
For the traditional process, this variation has (almost) no
influence on the IRR, because the investment for equipment, etc. is minimal. For
the KIT process, however, an increased shea kernel supply of 60 kg per woman per
year (equivalent to 20 % capacity utilization) would bring the IRR to about 30%;
a reduced shea kernel supply of 40 kg (13% capacity utilization) would reduce
the IRR to about 15%. For the 50 women in the GTZ/GATE project, the KIT process
requires a minimum of about 14 kg shea kernels per woman per year to result in
an IRR of 0.
Figure 22, C, indicates the expected IRR in relation to wages
calculated for collecting firewood and for the actual shea nut processing. In
the financial analysis of both processes, labour is the most important
production cost factor. Seen from the perspective of the concerned women, the
money realized from selling shea butter (wages) is a direct indicator of their
available cash income and/or an indirect indicator for the additional spare
As can be seen from the graphs, both processes are highly
sensitive to labour costs. Most interesting seems the point at which the IRR
becomes 0; i.e. the maximum wages that can be realized without running into
financial losses. For the traditional process, this point is reached at about F
CFA 22; for the KIT process, this point is reached at about F CFA 70 (or F CFA
50 considering the opportunity costs of capital).
For the women participating in the GTZ/GATE project, this result
means that their available cash income is about three and a half times the
previous (traditional) level without increasing their time spent on processing
the nuts. Since the process is limited mostly by the available rawmaterial, the
final result for the women could also mean that they can save up to 70 % of the
time previously spent on shea nut processing. To give an example: To earn F CFA
1000.- the women in the traditional process have to work for about 45 hours;
with the KIT process, it takes only about 13 working hours.