4.2 Sunflower seed processing in Zambia

In Zambia, the Kwacha (K) is the accounting currency. Although the Kwacha is currently under strong pressure, the exchange rate was taken as 8 K for the US $ to calculate the investment in machinery. As the discounting rate (long-term bank deposits), 10 % was assumed. For a loan from a local bank (6 years, I year grace period), an interest rate of 20 % was seen as realistic.

Table 14 is to give an overview on costs and results for the use of the handoperated equipment developed by KIT, and as alternatives the expellers from Simon-Rosedowns and Reinartz. The figures are based on field experience in Zambia and can be interpreted in the following way:

Table 14: Assumptions for Sunflower Seed Processing in Zambia (per year in Kwacha, unless stated otherwise)

As in Mali, land in rural areas in Zambia can be assumed to be provided free of costs by a group or the village. The building would in all cases be of rather small size and is assumed to have a residual value of 50 % after the project period.

The machinery for the hand-operated process consists of a decorticator, a winnower, a roller mill, a heating oven, a spindle press and other equipment like weighing scales, buckets, etc. The two technical alternatives consist both of diesel-powered expellers, the first from Simon- Rosedowns (MINI 40), the second from Reinartz (AP VII). Both expellers (not the diesel engines) are to last for ten years and the delivery prices include spare parts for two years.

Since seasonal price fluctuations for sunflower seeds are considerable, a one-year stock of rawmaterial has to be bought at low prices just after the harvest before the first production year. A second seed stock-up of the same amount is due as a current investment within the first production year to be able to double production from the second year onwards (see production programme below).

Further current investments refer to some equipment to be renewed every year (cleaning sieve, scales, buckets, drums etc.), and machinery parts after 5 years comprising a new gear box for the decorticator and for the two technical alternatives, new diesel engines.

Production costs involve the annual expenses for the raw- material seeds (except in the 10th year of production). For the two expellers, utilities (diesel, greasing oil, etc.) have to be calculated; for the hand-operated equipment, fuel wood (as valued by the wages for collecting) applies. Wages for the hand-operated process can be calculated lower (6 men with 4.5 K per day) than those for the alternatives (2 men and 4 men respectively with 10 K per day), since the equipment demands at least semi-skilled labour. In all cases, costs for maintenance and spare parts were calculated, marketing costs refer to the common practice of door-todoor sales or running a small shop.

The production programme in all three cases is geared to 40 % of maximum capacity for the first year of production, to be doubled in the second year and afterwards kept on this level until the end of the project period. Some caution is, however, advisable in trying to apply this assumption to the real Zambian context since no thorough market investigation could be done for this publication to verify whether the whole production (especially of the Reinartz version? could be easily sold. In all cases, the oil-cake as a by-product has a significant impact on the feasibility of the projects.

Apart from the stock-up on rawmaterial, working capital is required for utilities and spare parts (bearings, scrapers, leather belts for the first case; choke rings, rings, screws for the second; and scrapers, parts of the screw, cage-bars, etc. for the third). The finished products, which are usually sold only once every two weeks, have to be stored for 7 days on average.

In all cases, a local loan will probably be necessary in addition to equity capital to cover the investments. As can be seen from the figures in the above table, the total volume of the investment, at least for the Reinartz expeller, is not the smallest scale any more and could probably only be managed by a single investor or a well organized formal cooperative.

The profitability of the three versions of equipment for sunflower seed processing is again given by the internal rate of return (IRR) as the major indicator for the financial evaluation. The following figures were calculated:

- hand-operated equipment 22.47 %,
- Simon-Rosedown expeller 7.54 %,
- Reinartz expeller 26.55 %.

Under the assumptions described above (standard cases) for Zambia, the Simon Rosedowns expeller cannot be seen as a feasible enterprise, partly due to expensive spare parts. The hand-operated equipment undoubtedly has its strength for small-scale processing with little capital to invest and to risk. The Reinartz expeller requires a sizable market outlet, considerable volumes of rawmaterial supply and investment and management skills in general, but has its advantages due to a relatively good rate of oil recovery.

As for Mali, the standard cases in Zambia have been further analyzed by modifying some critical input data. The results of this sensitivity analysis are illustrated in Figure 23 and can be summarized as follows:

Figure 23: Summary Sheet, Sunflower Seed Processing in Zambia. Graphs are approximations.

Assumed standard wages per day:

- 100 % = 4,5 K for handoperated process (unskilled labour)
- 100 % = 10 K for expeller (semi-skilled)

Figure 23, A, indicates the expected IRR in relation to the rates of sunflower oil and oilcake recovery. (Recovery rates of oil and cake are seen as complementary; i.e. if in the modifications the oil recovery rate was reduced by 5 %, the oilcake recovery would be increased by 5 % and vice versa. The difference is, of course, the sales price of the two products.) Depending on the quality (oil content) of the seeds and the condition of the equipment, the oil recovery varies over a considerable range. As illustrated by the graphs, all three processes are financially very sensitive to varying recovery rates.

For the hand-operated equipment, an oil recovery rate of 20 % was assumed as the standard case, for which about 22 % IRR can be expected. The same process would produce more than 39 % financial return with 25 % oil recovery; below about 13 % oil recovery, the project would run into financial losses.

The Simon-Rosedowns equipment, which is just barely feasible to operate with standard case assumptions (20 % oil recovery) would make a financial loss with oil recovery rates below 17%. The process, however, gives good results (IRR more than 20 %), if the recovery rate can be brought up to 25 %.

The process with the Reinartz expeller shows an IRR = 0 point at a minimum recovery rate of about 15%. Within a more realistic range (23 % to 33 % oil recovery, taking 28 % as the standard case) the process gives very attractive financial returns of between 14 % and 37 % (27 % for the standard case).

Figure 23, B, indicates that all three processes are less sensitive to varying rates of capacity utilization which can be explained by the high proportion of variable costs in the production. As for the standard cases, all the variations illustrated by the graphs assume that for the first production year actual production is only half of what is produced from the second year onwards.

At full production (100 % capacity utilization from 2nd year), the process with the Reinartz expeller gives the best financial returns (34 %), followed closely by the hand-operated process (29 %). The Simon-Rosedowns equipment performs still rather poorly (IRR = ll.5 %) under these optimal conditions.

Figure 23, C, shows the relation of the IRR to the wages calculated for collecting fuel wood and the actual processing. The hand-operated equipment requires, of course, the most labour-intensive process and is therefore the most sensitive one in terms of labour costs (or wages realized). In this process, maximum wages of about 13.5 Kwacha per day could be paid before the project would run into financial losses. For the process using the Simon Rosedowns expeller, this point would be reached at around 14.5 Kwacha per day. The Reinartz process is so capital intensive that wages play only a minor role for its profitability.