Pre-Feasibility Study

Saffron Cultivation
(Planting, Maintenance, Harvesting and Processing)

Small and Medium Enterprises Development Authority

Ministry of Industries & Production

Government of Pakistan
www.smeda.org.pk

HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
[email protected]

REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE REGIONAL OFFICE

PUNJAB SINDH KPK BALOCHISTAN

3rd Floor, Building No. 3, 5TH Floor, Bahria Ground Floor Bungalow No. 15-A
Aiwan-e-Iqbal Complex, Complex II, M.T. Khan State Life Building Chaman Housing
Egerton Road Lahore, Road, Karachi. The Mall, Peshawar. Scheme
Tel: (042) 111-111-456 Tel: (021) 111-111-456 Tel: (091) 9213046-47 Airport Road, Quetta.
Fax: (042) 36304926-7 Fax: (021) 5610572 Fax: (091) 286908 Tel: (081) 831623,
[email protected] helpdesk- [email protected] 831702
.pk [email protected] Fax: (081) 831922
helpdesk-
[email protected]

JUNE 2019
Pre-Feasibility Study (Saffron Cultivation)

Table of Contents

1 DISCLAIMER ........................................................................................................... 2
2 EXECUTIVE SUMMARY ....................................................................................... 3
3 INTRODUCTION TO SMEDA ................................................................................ 4
4 PURPOSE OF THE DOCUMENT........................................................................... 4
5 BRIEF DESCRIPTION OF PROJECT & PRODUCT ........................................... 5
5.1 PRODUCTION PROCESS FLOW .............................................................................. 6
5.2 INSTALLED AND OPERATIONAL CAPACITIES ...................................................... 13
5.3 CRITICAL FACTORS..................................................................................... 13
6 GEOGRAPHICAL POTENTIAL FOR INVESTMENT ...................................... 14
7 POTENTIAL TARGET CUSTOMERS / MARKETS .......................................... 14
8 PROJECT COST SUMMARY ............................................................................... 14
8.1 PROJECT ECONOMICS ........................................................................................ 14
8.2 PROJECT FINANCING ......................................................................................... 14
8.3 PROJECT COST .................................................................................................. 15
8.4 SPACE REQUIREMENT ....................................................................................... 15
8.5 MACHINERY & EQUIPMENT REQUIREMENT ....................................................... 16
8.6 FURNITURE & FIXTURES REQUIREMENT ............................................................ 16
8.7 OFFICE EQUIPMENT REQUIREMENT ................................................................... 17
8.8 HUMAN RESOURCE REQUIREMENT .................................................................... 17
8.9 REVENUE GENERATION..................................................................................... 17
9 CONTACT DETAILS ............................................................................................. 18
9.1 SAFFRON CORM SUPPLIERS ............................................................................... 18
9.2 TECHNICAL EXPERTS / CONSULTANTS ............................................................... 18
10 USEFUL WEB LINKS ............................................................................................ 19
11 ANNEXURES .......................................................................................................... 20
11.1 INCOME STATEMENT ......................................................................................... 20
11.2 BALANCE SHEET ............................................................................................... 21
11.3 CASH FLOW STATEMENT................................................................................... 22
12 KEY ASSUMPTIONS ............................................................................................. 23
12.1 CASH FLOW ASSUMPTIONS ............................................................................... 23
12.2 REVENUE ASSUMPTIONS ................................................................................... 23
12.3 FINANCIAL ASSUMPTIONS ................................................................................. 23

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1 DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on the said matter. Although, the material included in this document
is based on data/information gathered from various reliable sources; however, it is based
upon certain assumptions, which may differ from case to case. The information has been
provided on as is where is basis without any warranties or assertions as to the correctness
or soundness thereof. Although, due care and diligence has been taken to compile this
document, the contained information may vary due to any change in any of the concerned
factors, and the actual results may differ substantially from the presented information.
SMEDA, its employees or agents do not assume any liability for any financial or other loss
resulting from this memorandum in consequence of undertaking this activity. The
contained information does not preclude any further professional advice. The prospective
user of this memorandum is encouraged to carry out additional diligence and gather any
information which is necessary for making an informed decision, including taking
professional advice from a qualified consultant/technical expert before taking any decision
to act upon the information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk

Document Control

Document No. PREF-NO

Revision
Prepared by SMEDA-Balochistan
Revision Date June, 2019
For information [email protected]

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2 EXECUTIVE SUMMARY
SAFFRON cultivation and processing is proposed to be located at District Mastung and
outskirts of Quetta.
Saffron cultivation is considered a profitable business all around the world because this
spice is very expensive and can be sold at very high prices. The objective of the pre-
feasibility is to improve livelihoods across Balochistan by introducing Saffron as a
profitable crop in the province and by guiding the potential growers in matters like
capacity of producing better quality saffron, improving their position in value chain and
marketing their product.

Another reason for introducing Saffron as a crop in the province is that the climate of some
parts of the province is very suitable for its cultivation. Also, the crop does hardly needs
irrigation and the decreasing water table of Balochistan makes saffron all the more suitable
for the potential growers.

Saffron cultivation and processing is a very labor intensive undertaking and labor being
cheap here make it feasible for growers to cultivate and produce saffron and earn high
profits.

Product(s) include Dried and Packaged Saffron, dried Saffron flowers and corms. The
capacity of the farm to produce Saffron in the first year is 2.5 Kg per acre and at the four
year at the maximum production it will produce 5 Kg per acre Total Cost Estimates is Rs.
10,339,530 with fixed investment Rs. 4,438,053 and working capital Rs.5, 901,477

Given the cost assumptions IRR and payback are 31%and 6 years respectively
The most critical considerations or factors for success of the project are:
• Harvesting method
• Spice separation
• Drying

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3 INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in
October 1998 with an objective to provide fresh impetus to the economy through
development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the national
income, through development of the SME sector, by helping increase the number, scale
and competitiveness of SMEs", SMEDA has carried out ‘sectoral research’ to identify
policy, access to finance, business development services, strategic initiatives and
institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment has been
a successful hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business development services
is also offered to the SMEs by SMEDA. These services include identification of experts
and consultants and delivery of need based capacity building programs of different types in
addition to business guidance through help desk services.

4 PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in
project identification for investment. The project pre-feasibility may form the basis of an
important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, and production,
marketing, finance and business management.
The purpose of this document is to facilitate potential investors in Saffron Cultivation by
providing them with a general understanding of the business with the intention of
supporting potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes such reports
reveal certain thumb rules; best practices developed by existing enterprises by trial and
error, and certain industrial norms that become a guiding source regarding various aspects
of business set-up and it’s successful management.
Apart from carefully studying the whole document one must consider critical aspects
provided later on, which form basis of any Investment Decision.

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5 BRIEF DESCRIPTION OF PROJECT & PRODUCT

Following key parameters must be addressed as per pre-feasibility study under preparation

Technology: In Pakistan Saffron can be cultivated in Quetta and district Mastung, which
have suitable climatic and ecological conditions for cultivation and production of Saffron. .
Texture of the soil is more important than the climate. Saffron grows in loose soil which is
enriched with organic compound. It DOES NOT GROW in heavy clay soil. Make sure you
have a loamy soil to start with. Saffron can be grown in any climatic conditions that are
warm and humid. Texture of the soil is more important than the climate. Saffron grows in
loose soil which is enriched with organic compound and calcium. Saffron is believed to be
a low nutrient requiring plant and so fertile soils with high nutrient contents is not ideal
because this may result in excessive vegetative growth and little flower production. Saffron
can be planted in three different methods:

• Ridge method planting method

• Flat bed planting method
• Traditional Planting Method
•
Plant density differs in the above mentioned types. The land should be prepared before
planting saffron corms as follows:

• Deep ploughing of land (20 - 25 cm)

• Land levelling
• Removal of weeds and dead plant material, stones, etc. from the field.
• Making of suitable ridges or small plots

Soil preparation is practiced in autumn or winter, and application of 8-12 tons well
decomposed animal manure per acre is recommended. A second shallow tillage is
necessary in late March or early April.

• Location: The Saffron Cultivation Farms can be established in Mastung and outskirts of
Quetta.
• Product: Dried and packaged Saffron will be the end product that will be marketed
through different Platforms.
• Target Market: In addition to local markets in Karachi, Lahore and Islamabad an
enormous export market for saffron exists in Spain, Greece, Italy and the UAE.
• Employment Generation: The proposed project will provide direct employment
to 15 people. Financial analysis shows the unit shall be profitable from the very first
year of operation

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5.1 Production Process Flow

Corm Saffron Fertilizer Irrigation Harvesting

Preparation Plantation Application

Transportation Processing Drying saffron Packaging of Marketing

Saffron

5.1.1 Corm Preparation before Planting

Corm Selection: Corm for planting should come from 2 to 4 year old saffron corm bank or
saffron multiplication field. Corm should be healthy with no injuries. It should be big size
with approximate weight of 8 g or more and a diameter of 3 cm. However, medium size
corm with the weight 6 g and diameter of 2.5 cm could also be used in the absence of big
size corm.

Corm storage:
Corm should be planted immediately after they are removed from the field. Corm storage
before planting is not recommended because it may reduce the flowering potential of the
plant. In cases however, that storing is essential, then corm should be stored in dry and
cool room (3 to 5ºC) with good ventilation for only a few days but not more than a month.

Corm packaging and transport:

Saffron corm packaging and transportation to new fields should be done very carefully.
Plastic or carton boxes are suitable. A maximum load of 15 – 17 kg per box is optimal.

Planting of Saffron Corm

Regardless of what planting method is used, in Balochistan in general planting of saffron
corm is done from late May through early October. However, recent research results that
planting of saffron corm from April through June leads the best production.

5.1.2 Saffron Plantation:

Land Preparation

The land should be prepared before planting saffron corms as follows:

• Deep ploughing of land (20 - 25 cm)

• Land levelling
• Removal of weeds and dead plant material, stones, etc. from the field.
• Making of suitable ridges or small plots

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Soil preparation is practiced in autumn or winter, and application of 8-12 tons well
decomposed animal manure per acre is recommended. A second shallow tillage is
necessary in late March or early April.

Site Requirements

There is no doubt that saffron is one of the crops adaptable to the climatic condition of
Balochistan. For better growth and production, saffron requires the following specific
condition:

Climate: Mild winters with heavy snowfall and hot summers are excellent; which means
that the climate of some parts of Balochistan, such as Mastung, is suitable for saffron
production.

Temperature: Saffron grows well under temperate and dry climates; its vegetative growth
coincides with cold weather and freezing condition. Saffron tolerates maximum of +45ºC
and minimum of -18ºC.

Moisture: Annual rainfall requirement for saffron is about 300 mm. Saffron maximum
water requirement is in March and April of about 15 to 20 liters per m2 per irrigation
period.

Soil: Saffron can be grown in a wide range of soils, with moderate structure and good
infiltration. But for better growth and production, soil should be sandy loam, rich in
calcium and high content of organic matter. Saffron is believed to be a low nutrient
requiring plant and so fertile soils with high nutrient contents is not ideal because this may
result in excessive vegetative growth and little flower production. Optimal soil pH value
required by saffron plant is 7-7.5. Soils with high moisture content and prone to water
logging or flooding are not suitable for saffron production, as corm decomposition
resulting from fungus infection may occur.

Planting Method and Plant Density

Different planting methods are used in different countries. Ridge planting method is
applicable in Balochistan:

Ridge Planting Method

Ridge planting method has the following advantages: irrigation is easy, corm is prevented
from being soaked in water – logged soils and therefore corm decomposition is prevented.
Ridge cultivation provides better protection against high temperature as well as pest and
diseases.
In ridge planting method, the following must be observed:

• Height of ridge should be about 30 cm.

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• Distance between ridges can be 75 cm when prepared by machine/tractor or 50 cm

between ridges when prepared manually.
• Planting rate should be a minimum of 1,000 kg corm per half acre to a maximum of
2,600 kg corm per half acre.
• Planting distance between corms is flexible.
• Planting depth should be 20-25 cm below the surface of the ridge.

5.1.3 Fertilizer Application:

Saffron requires limited amount of nutrients compare to other agricultural plants. It is

estimated that for 1 kg of saffron dry matter only about 12 g Nitrogen, 3 g Potassium and
22 g Phosphorous are removed from the soil.

Application of too much fertilizer to the plant is not recommended because this will result
in excessive vegetative growth that will negatively affect the corm quality and flower
development. The only fertilizer application required is therefore the application of 8 to 12
tons per acre of well decomposed animal manure before ploughing and planting.

5.1.4 Irrigation:

Saffron is a suitable plant for semi-arid regions like Afghanistan where water limitation is
a prevalent problem. Saffron corm normally undergo dormancy period for 5 months
starting from early May up to late October where irrigation is not required. The dormancy
period of saffron coincide with the period where water is limited. The irrigation
requirements of saffron, if there is any, occurs at times when other crops have little or no
need for irrigation, so saffron does not compete with other crops for irrigation water.

The growth of saffron starts immediately after first irrigation at the end of its dormancy
period. Therefore, irrigation at the end of September is essential to induce early flowering.

The succeeding growth period of saffron usually falls into the winter and spring period
with sufficient rainfall. However, if rainfall is not sufficient after the flower harvesting and
at the emergence of the leaves, a second irrigation should be applied.

Irrigation during summer has some positive effects on the saffron yield but it is not
recommended because of the high risk of fungal infection to the corm due to water
logging.

Saffron Corm Thinning: New saffron corms grow above the old corm each season and
they normally protrude on soil surface by about 1-3 cm each year. The corm protruding on
the surface is normally damaged by frost and thereby affecting the growth of plant.
Therefore, periodically after 4 years up to 7 years, some corms need to be removed from
the mother plant and these corms can be used as planting material in establishing another
saffron field. Corms should be removed from the mother plant carefully by digging using
shovel.
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Weed control: Weed control is an important practice in saffron cultivation. Farmers have
to weed regularly, as follows:

• after each irrigation

• after flowers have been harvested

• additional weeding may be needed for control of spring and summer weeds

Caution should be made during weeding, especially in ridge planting method, not to step
on the ridge. The person doing the weeding should walk between ridges. Take all the
weeds out of the field in a basket and feed them to animals or heap them for composting
for use in the establishment of new saffron field.

Pests and Diseases Control: The taste and smell of saffron corm is attractive to many
animals. The corm is palatable food for insects, worms, domestic and wild animals. It is
therefore necessary that the farmers should regularly check the field for any damage.

Breaking of Soil Crust: In the second year after first irrigation, breaking of the soil crust
is important practice to facilitate the emergence of flowers. Breaking of the crust in the soil
surface up to depths of 5-10 cm is recommended.

5.1.5 Harvesting:
The flowering stage of saffron starts from October and continues for some 3 weeks. Each
flower lives only for some 48 hours. This is the reason why saffron has such a high value.
The vast amount of labor required for harvesting and on-farm processing in a relatively
short period.

Saffron flowers should be picked early morning as soon as they open. The timing of the
harvest and speedy processing is important, as the wilting of the flowers makes the post-
harvest process difficult to impossible, and the quality suffers considerably. The optimal
harvest time is therefore early in the morning before there is full sun. The flowers should
be cut from the plant by the fingernails near to the ground. It should be put in a clean
basket to avoid contamination of stigma. A good flower collector can collect as much as
3,000 flowers per hour.

Factors affecting quality and preciousness of saffron are:

• Harvesting method
• Spice separation
• Drying
•
Also care must be taken that:

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• Picking flowers early morning before sunrise.

• Putting collected flowers in plastic baskets or other clean pots and transport them
within shortest possible time to a separation or processing center.
• Dirty plastic bags or containers should not be used for collection of flowers.
• Try not to contact your hands with soil during picking of flowers.
• Picking of small blossom which are not open yet should be avoided.
• Flowers should be stored in a cold and closed area and during separation of stigma
should not be exposed to sun light.
• Separation of stigma should start immediately after picking of flowers.

5.1.6 Transportation:

Method of transportation and storage of flowers is another stage that has significant effect
on the quality of saffron before separation of stigma from flower. The following should be
considered during transportation.

For transportation of collected flowers to processing center, bags of chemical fertilizer or

dirty cloths should not be used. Clean plastic or wooden baskets which allow aeration is
recommended.
Collection of flowers on any dusty surface is strictly ruinous.
In case of need to store flowers before processing for a few days the flowers can be stored
under shade and layers of less than 10cm.
If there is big distance from field to processing center, flowers should be put in plastic or
wooden baskets and transported in a closed cabinet of a vehicle to processing center.
Storage or place for keeping of flowers should be sterilized and closed for unconcerned
people.
People who are working in the storages should consider all hygienic requirements.
People who are walking inside storage or processing center should change their clothes and
shoes prior entering the center and handling flowers.

5.1.7 Processing:
Spice Separation Method:

There are three stigmas (strings) in the middle of the saffron flower with 2-3 cm long and
red color called saffron. The deep red stigmas are attached to the flowers by pale filaments
called styles. These, as well as the yellow stamens, are worthless as spice. To separate
stigma from the flower, hold flower in one hand and take out the stigma with the fingers of
the other hand and keep them in a safe place already arranged for.

• While the flowers are being collected, the stigmas are separated from the flowers.
Careful separation of stigmas from flowers and styles is needed.
• Separate stigmas from flowers in a clean environment.

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• Ensure that the place where stigmas are separated from flowers is as free from dust
as possible.
• Ensure that the people who do this work keep their hands clean at all times,
washing thoroughly with antibacterial soap or, if water is scarce, using antiseptic
gel, or hand wash liquid or soap.
• When there is a need to store saffron flowers, the stored flowers’ layer thickness
should not be more then 10cm and storage temperature must be 0°C. in this
condition, we can keep saffron flowers for 7 days.
• Separate the stigmas from the styles, unless buyers do not want this. There are
some wholesalers and retailers who prefer the styles (2mm) to be included when
they are not well mixed with the stigmas and are easy to separate. Because saffron
is so expensive some suppliers are tempted to adulterate it with cheaper material
and dye it all red to pass as pure. If buyers can see the styles they know this is
unlikely to have happened. They can then separate the styles from the stigmas
themselves and sell the saffron under their own labels knowing that it is pure
saffron.

5.1.8 Drying saffron

To keep saffron preserved for a longer period of time, it should be dried. The process of
drying has great effect on the quality and the value of the final product. There are different
ways to dry saffron.

Electric oven for drying

Drying saffron in electric ovens can be done. The temperature of these oven can be
regulated from 50 to 60 degrees these ovens are equipped with special trays
On which silken nets are placed. In this system the saffron is kept in layers of 1-2 cm
thickness for a period of 30-40 minutes while the saffron dries in the oven.
Another method of drying is when the stigma and style are being separated from the
flower, it is spread in rows either on cloth or a piece of paper and is dried in the shade.
This system is not free from defects. Is takes a longer time to dry, which increases the
probability of growth of microorganisms and also pollution.
Packaging of Saffron:

Ideally, saffron should be packed in air-tight and light protected containers like tins, cans
and dark glass. However, some buyers prefer saffron to be packed in a clear glass so that
they can make the quality assessment easily without necessary removing the saffron from
the container. If saffron is packed in a clear glass, it must be stored in a dark place until it
is sold in order to prevent deterioration and loss of quality.

Most plastic bags and solid plastic containers are not recommended for packing saffron.
Although it can also be sealed, the aroma of saffron can still escape and the quality of spice
becomes lower.
After certification of saffron quality by a credible laboratory, saffron should be packed in a
suitable can and stored in a dry, cool and dark place till it is sold or used Saffron quality
can be kept up to 2 years if proper storage conditions are met.

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Generally containers to keep saffron in bulk should have the following specifications:

• Not be poisonous for food material

• Attractive to consumer
• Resistant to light, moisture, oil and gas
• Low cost
• Resistant to physical pressure or shock
• Wastage should have least damage to environment.

Cans for Packing of Saffron for Consumers:

These include the following:

• Glass cans
• Metal cans
• Plastic cans
• Simple or complex plastic films

Saffron comes under dry food products, therefore; producers should try to keep it away
from moisture, temperature, air (oxygen), light and pollutions.

5.1.9 Marketing:

Saffron Markets, Marketing Strategies and Pricing:

To increase saffron sales, the following markets and marketing strategies need to be
considered:

• Local market needs to be addressed through a Home Business Marketing strategy,

which creating linkages with society and businesses through seminars, exhibitions,
symposiums as well as the creation of saffron sales representatives Other activities:
• Networking and organizing of local market through coordination with industrial,
food and home consumers
• Creativity on packaging according to consumers interests
• Raising awareness of families about significance of saffron and methods of using
saffron -at home
• International Market
Local market (Home business marketing) promotion:

In local market following strategies be followed:

• Public relations.
• Market research (feasibility study)
• Positioning (Competitive local market)

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• Brand name / trade mark

• Improve distribution system in national markets

5.2 Installed and Operational Capacities

The proposed ‘Saffron Farm’ would be located in 5 acre of agriculture land.
Approximately 58080 plants will be sowed per acre. The average dried saffron produced
per acre during year one is assumed as 2.5 kgs whereas maximum Saffron produced in the
subsequent years (Maximum production starts at year 4) is estimated as 5 kgs per acre.
Therefore, total Production produced from the proposed farm in year one is 13 kgs and
subsequently around 25 kgs in the later years.

5.3 CRITICAL FACTORS

The most critical considerations or factors for success of the project are:

Harvesting method
Spice separation
Drying

These all effect production greatly which is why care must be taken on these accounts:

Saffron Corm Thinning: New saffron corms grow above the old corm each season and
they normally protrude on soil surface by about 1-3 cm each year. The corm protruding on
the surface is normally damaged by frost and thereby affecting the growth of plant.
Therefore, periodically after 4 years up to 7 years, some corms need to be removed from
the mother plant and these corms can be used as planting material in establishing another
saffron field. Corms should be removed from the mother plant carefully by digging using
shovel.

Weed control: Weed control is an important practice in saffron cultivation. Farmers have
to weed regularly, as follows:

• after each irrigation

• after flowers have been harvested
• additional weeding may be needed for control of spring and summer weeds

Caution should be made during weeding, especially in ridge planting method, not to step
on the ridge. The person doing the weeding should walk between ridges. Take all the
weeds out of the field in a basket and feed them to animals or heap them for composting
for use in the establishment of new saffron field.

Breaking of Soil Crust: In the second year after first irrigation, breaking of the soil crust
is important practice to facilitate the emergence of flowers. Breaking of the crust in the soil
surface up to depths of 5-10 cm is recommended.

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6 GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The Saffron Cultivation Farms can be established in Mastung and outskirts of Quetta. Also
it can be grown in a small area of Soon valley in Punjab, which have suitable climatic and
ecological conditions for cultivation and production of Saffron.

7 POTENTIAL TARGET CUSTOMERS / MARKETS

In addition to local markets in Karachi, Lahore and Islamabad an enormous export market
for saffron exists in Spain, Greece, Italy and the UAE.

8 PROJECT COST SUMMARY

8.1 Project Economics

All the figures in this financial model have been calculated for estimated sales of Rs.132,
053,350 million in the year one. The capacity utilization during year one is worked out at
65% with 5 % increase in subsequent years up to the maximum capacity utilization of
95%.

The average dried saffron produced per acre during year one is assumed as 2.5 kgs whereas
maximum Saffron produced in the subsequent years (Maximum production starts at year 4)
is estimated as 5 kgs per acre. Therefore, total Production produced from the proposed
farm in year one is 13 kgs and subsequently around 25 kgs in the later years.

The following table shows internal rate of return, payback period and net present value of
the proposed venture.
Table 1: Project Economics
Description Details

Internal Rate of Return (IRR) 30%

Payback Period (yrs.) 6.20

Net Present Value (Rs.) Rs.59,485,113

8.2 Project Financing

Following table provides details of the equity required and variables related to bank loan;

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Table 2: Project Financing

Description Details
Total Equity (40%) Rs.4,538,143

Bank Loan (60%) Rs.6,807,214

Markup to the Borrower (%age / annum) 14%

Tenure of the Loan (Years) 5 Yrs

8.3 Project Cost

Following fixed and working capital requirements have been identified for operations of
the proposed business.
Table 3: Project Cost
Capital Investment Rs. in actuals
Building/Infrastructure 3,058,800
Machinery & equipment 1,000,000
Furniture & fixtures 99,580
Office equipment 1,500
Pre-operating costs 1,284,000
Total Capital Costs 5,443,880
Working Capital Rs. in actuals
Equipment spare part inventory 75,373
Raw material inventory 5,276,104
Upfront insurance payment 50,000
Cash 500,000
Total Working Capital 5,901,477
Total Investment 11,345,357

8.4 Space Requirement

The proposed Saffron farm will be spread on five (05) acres of agricultural land. It is
recommended to acquire the land on lease basis. The average lease cost in Mastung 8000 o

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10,000 per acres. For the purpose of this pre-feasibility, average land lease cost is
estimated at Rs. 8000 per acre. The infrastructural requirements of the project mainly
comprises of the construction of Management Building, storage, and washroom. The cost
of construction for the proposed infrastructure requirement is provided in the table below:

Table 4: Space Requirment

Estimated Area Unit Cost (Rs.) Total Cost

Description
(Sq.Ft) (Rs.)
Management Office 588 1500 882000
Store Room 600 1500 900000
Wash Room 64 1200 76800
1858800
Total

8.5 Machinery & Equipment Requirement

Plant, machinery and equipment for the proposed project are stated below

Table 5: Machinery & Equipment

Description Quantity Unit Cost Total Cost
(Rs.) (Rs.)

Tube Well 1 900,000 900,000

Generator 1 300,000 300,000
Total 1200000

8.6 Furniture & Fixtures Requirement

Details of the furniture and fixture required for the project are given below;
Table 6: Furniture & Fixture
Description Quantity Unit Cost Total Cost
(Rs.) (Rs.)

Carpeting 588 Sq.Ft 35 20580

Total 20580

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8.7 Office Equipment Requirement

Following office equipment will be required for Saffron Cultivation farm.

Table 7: Office Equipment

Description Quantity Unit Cost Total Cost
(Rs.) (Rs.)

Telephone Sets 1 1500 1500

Total 1500

8.8 Human Resource Requirement

In order to run operations of Saffron Cultivation farm smoothly, details of human
resources required along with number of employees and monthly salary are recommended
as under;

Table 8: Human Resource Requirment

Description No. of Employees Monthly Salary per
person (Rs.)
Farm Manager 1 30000
Labours 11 21000
Total 51000

8.9 Revenue Generation

Based on the capacity utilization of 65%, sales revenue during the first year of operations
is estimated as under;

Table 9: Revenue Generation – Year 1

Description No. of Kg Sale Price / unit Sales Revenue
Produced (Rs.) (Rs.)

Dried Saffron 180895 730 132,053,350

Total 132,053,350

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9 CONTACT DETAILS
In order to facilitate potential investors, contact details of private sector Service Providers
relevant to the proposed project be given.

9.1 Saffron Corm Suppliers

Name of Address E-mail Website
Supplier

Sky Seeds 89
SKY Vegetable Market,
[email protected] www.skyseeds.com
SEEDS Alama Iqbal Town
Lahore, Pakistan

9.2 Technical Experts / Consultants

Name of Expert/Organization Address Phone

Agriculture (081) 2870752

Muhammad Asif
Directorate Quetta

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10 USEFUL WEB LINKS

Small & Medium Enterprises Development www.smeda.org.pk

Authority (SMEDA)
Government of Pakistan www.pakistan.gov.pk
Ministry of Industries & Production www.moip.gov.pk
Ministry of Education, Training & Standards in http://moptt.gov.pk
Higher Education
Government of Punjab www.punjab.gov.pk
Government of Sindh www.sindh.gov.pk
Government of Khyber Pakhtunkhwa www.khyberpakhtunkhwa.gov.pk
Government of Balochistan www.balochistan.gov.pk
Government of Gilgit Baltistan www.gilgitbaltistan.gov.pk
Government of Azad Jamu Kashmir www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP) www.tdap.gov.pk
Security Commission of Pakistan (SECP) www.secp.gov.pk
Federation of Pakistan Chambers of Commerce www.fpcci.com.pk
and Industry (FPCCI)
State Bank of Pakistan (SBP) www.sbp.org.pk
Punjab Small Industries Corporation www.psic.gop.pk
Sindh Small Industries Corporation www.ssic.gos.pk
Pakistan Horticulture Development and Export www.phdec.org.pk
Company (PHDEC)
Punjab Vocational Training Council (PVTC) www.pvtc.gop.pk
Technical Education and Vocational Training www.tevta.org
Authority (TEVTA)
Pakistan Readymade Garment Technical Training www.prgmea.org/prgtti/
Institute
Livestock & Dairy Development Department, www.livestockpunjab.gov.pk
Government of Punjab.
Punjab Industrial Estates (PIE) www.pie.com.pk
Faisalabad Industrial Estate Development and www.fiedmc.com.pk
Management Company (FIEDMC)

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11 ANNEXURES

11.1 Income Statement

Statement Summaries SMEDA
Income Statement
Rs. in actuals
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 132,053,350 162,748,025 191,848,344 225,141,245 263,174,244 306,562,431 355,996,512 392,456,814 431,702,495 474,872,745
Cost of goods sold 128,435,450 151,094,213 170,014,816 190,449,745 212,503,129 236,285,727 261,915,328 275,615,514 289,396,290 303,866,104
Gross Profit 3,617,900 11,653,813 21,833,527 34,691,501 50,671,116 70,276,703 94,081,184 116,841,300 142,306,205 171,006,641

General administration & selling expenses

Administration expense 1,322,520 1,451,282 1,592,581 1,747,637 1,917,790 2,104,508 2,309,406 2,534,253 2,780,992 3,051,753
Rental expense - - - - - - - - - -
Utilities expense - - - - - - - - - -
Travelling & Comm. expense (phone, fax, etc.) 25,680 28,180 30,924 33,935 37,239 40,864 44,843 49,209 54,000 59,257
Office vehicles running expense - - - - - - - - - -
Office expenses (stationary, etc.) 12,840 14,090 15,462 16,967 18,619 20,432 22,421 24,604 27,000 29,629
Promotional expense 1,320,534 1,627,480 1,918,483 2,251,412 2,631,742 3,065,624 3,559,965 3,924,568 4,317,025 4,748,727
Insurance expense 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000
Professional fees (legal, audit, etc.) 660,267 813,740 959,242 1,125,706 1,315,871 1,532,812 1,779,983 1,962,284 2,158,512 2,374,364
Depreciation expense 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048
Amortization expense 55,635 55,635 55,635 55,635 55,635 - - - - -
Property tax expense - - - - - - - - - -
Miscellaneous expense 3,961,601 4,882,441 5,755,450 6,754,237 7,895,227 9,196,873 10,679,895 11,773,704 12,951,075 14,246,182
Subtotal 7,672,123 9,180,896 10,630,825 12,283,578 14,165,171 16,249,162 18,679,562 20,546,671 22,561,652 24,777,961
Operating Income (4,054,223) 2,472,916 11,202,702 22,407,923 36,505,944 54,027,541 75,401,622 96,294,629 119,744,554 146,228,680

Other income 25,000 - - - 661,351 2,796,696 6,488,530 11,679,410 18,531,512 28,332,817

Gain / (loss) on sale of assets - - - - - - - - - -
Earnings Before Interest & Taxes (4,029,223) 2,472,916 11,202,702 22,407,923 37,167,295 56,824,237 81,890,152 107,974,039 138,276,066 174,561,497

Interest expense 2,003,656 3,210,886 2,921,918 1,687,469 471,954 - - - - -

Earnings Before Tax (6,032,879) (737,970) 8,280,784 20,720,454 36,695,342 56,824,237 81,890,152 107,974,039 138,276,066 174,561,497

Tax - - 619,073 8,495,386 15,045,090 23,297,937 33,574,962 44,269,356 56,693,187 71,570,214

NET PROFIT/(LOSS) AFTER TAX (6,032,879) (737,970) 7,661,711 12,225,068 21,650,251 33,526,300 48,315,190 63,704,683 81,582,879 102,991,283

Balance brought forward (6,032,879) (6,770,849) 890,861 13,115,929 34,766,181 68,292,481 116,607,670 180,312,353 261,895,232
Total profit available for appropriation (6,032,879) (6,770,849) 890,861 13,115,929 34,766,181 68,292,481 116,607,670 180,312,353 261,895,232 364,886,515
Dividend - - - - - - - - - -
Balance carried forward (6,032,879) (6,770,849) 890,861 13,115,929 34,766,181 68,292,481 116,607,670 180,312,353 261,895,232 364,886,515

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11.2 Balance Sheet

Statement Summaries SMEDA

Balance Sheet
Rs . in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

As s ets
Current assets
Cas h & Bank 500,000 - - - - 13,227,019 42,706,905 87,063,686 146,524,523 224,105,721 342,550,619
Accounts receivable - 10,853,700 12,115,125 14,572,454 17,136,558 20,067,760 23,413,836 27,228,450 30,758,356 33,869,561 37,256,517
Finis hed goods inventory - 5,584,150 6,314,385 7,103,683 7,956,125 8,876,052 9,868,081 10,937,124 11,483,980 12,058,179 12,661,088
Equipment s pare part inventory 75,373 93,104 110,001 129,383 151,584 176,976 205,981 227,593 250,921 276,641 -
Raw material inventory 5,276,104 6,517,268 7,700,055 9,056,841 10,610,870 12,388,321 14,418,669 15,931,520 17,564,500 19,364,862 -
Pre-paid annual land leas e - - - - - - - - - - -
Pre-paid building rent - - - - - - - - - - -
Pre-paid leas e interes t - - - - - - - - - - -
Pre-paid ins urance 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -
Total Current As s ets 5,901,477 23,093,222 26,279,566 30,897,361 35,885,137 54,761,127 90,633,471 141,403,372 206,592,281 289,679,963 392,468,224

Fixed assets
Land - - - - - - - - - - -
Building/Infras tructure 3,058,800 2,905,860 2,752,920 2,599,980 2,447,040 2,294,100 2,141,160 1,988,220 1,835,280 1,682,340 1,529,400
Machinery & equipment 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 -
Furniture & fixtures 99,580 89,622 79,664 69,706 59,748 49,790 39,832 29,874 19,916 9,958 -
Office vehicles - - - - - - - - - - -
Office equipment 1,500 1,350 1,200 1,050 900 750 600 450 300 150 -
Total Fixed As s ets 4,159,880 3,896,832 3,633,784 3,370,736 3,107,688 2,844,640 2,581,592 2,318,544 2,055,496 1,792,448 1,529,400

Intangible assets
Pre-operation cos ts 278,173 222,538 166,904 111,269 55,635 - - - - - -
Legal, licens ing, & training cos ts - - - - - - - - - - -
Total Intangible As s ets 278,173 222,538 166,904 111,269 55,635 - - - - - -
TOTAL ASSETS 10,339,530 27,212,592 30,080,253 34,379,366 39,048,460 57,605,767 93,215,063 143,721,916 208,647,777 291,472,411 393,997,624

Liabilities & Shareholders ' Equity

Current liabilities
Accounts payable - 11,099,657 13,060,625 14,728,853 16,537,989 18,498,775 20,622,771 22,855,433 24,117,611 25,400,366 24,975,296
Export re-finance facility - - - - - - - - - - -
Short term debt - 15,750,013 17,853,917 13,141,626 4,373,344 - - - - - -
Other liabilities - - - - - - - - - - -
Total Current Liabilities - 26,849,670 30,914,542 27,870,479 20,911,333 18,498,775 20,622,771 22,855,433 24,117,611 25,400,366 24,975,296

Other liabilities
Leas e payable - - - - - - - - - - -
Deferred tax - - - 205,000 205,000 205,000 164,000 123,000 82,000 41,000 -
Long term debt 6,203,718 2,259,989 1,800,749 1,277,214 680,385 - - - - - -
Total Long Term Liabilities 6,203,718 2,259,989 1,800,749 1,482,214 885,385 205,000 164,000 123,000 82,000 41,000 -

Shareholders' equity
Paid-up capital 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812 4,135,812
Retained earnings - (6,032,879) (6,770,849) 890,861 13,115,929 34,766,181 68,292,481 116,607,670 180,312,353 261,895,232 364,886,515
Total Equity 4,135,812 (1,897,067) (2,635,037) 5,026,673 17,251,741 38,901,993 72,428,293 120,743,482 184,448,165 266,031,044 369,022,327
TOTAL CAPITAL AND LIABILITIES10,339,530 27,212,592 30,080,253 34,379,366 39,048,460 57,605,767 93,215,063 143,721,916 208,647,777 291,472,411 393,997,624

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
- - - - (0) 0 (0) 0 (0) 0 (0)

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11.3 Cash Flow Statement

- - - - (0) 0 (0) 0 (0) 0 (0)

Statement Summaries SMEDA

Cash Flow Statement
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities
Net profit - (6,032,879) (737,970) 7,661,711 12,225,068 21,650,251 33,526,300 48,315,190 63,704,683 81,582,879 102,991,283
Add: depreciation expense - 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048 263,048
amortization expense - 55,635 55,635 55,635 55,635 55,635 - - - - -
Deferred income tax - - - 205,000 - - (41,000) (41,000) (41,000) (41,000) (41,000)
Accounts receivable - (10,853,700) (1,261,425) (2,457,329) (2,564,105) (2,931,201) (3,346,076) (3,814,614) (3,529,906) (3,111,205) (3,386,956)
Finished good inventory - (5,584,150) (730,235) (789,298) (852,442) (919,927) (992,029) (1,069,042) (546,856) (574,199) (602,909)
Equipment inventory (75,373) (17,731) (16,897) (19,383) (22,200) (25,392) (29,005) (21,612) (23,328) (25,719) 276,641
Raw material inventory (5,276,104) (1,241,164) (1,182,787) (1,356,786) (1,554,029) (1,777,451) (2,030,348) (1,512,851) (1,632,981) (1,800,361) 19,364,862
Pre-paid building rent - - - - - - - - - - -
Pre-paid lease interest - - - - - - - - - - -
Advance insurance premium (50,000) 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Accounts payable - 11,099,657 1,960,968 1,668,228 1,809,136 1,960,786 2,123,996 2,232,663 1,262,178 1,282,755 (425,070)
Other liabilities - - - - - - - - - - -
Cash provided by operations (5,401,477) (12,306,284) (1,644,663) 5,235,826 9,365,111 18,280,748 29,479,886 44,356,781 59,460,837 77,581,198 118,444,898

Financing activities
Change in long term debt 6,203,718 (3,943,729) (459,241) (523,534) (596,829) (680,385) - - - - -
Change in short term debt - 15,750,013 2,103,904 (4,712,291) (8,768,282) (4,373,344) - - - - -
Change in export re-finance facility - - - - - - - - - - -
Add: land lease expense - - - - - - - - - - -
Land lease payment - - - - - - - - - - -
Change in lease financing - - - - - - - - - - -
Issuance of shares 4,135,812 - - - - - - - - - -
Purchase of (treasury) shares - - - - - - - - - - -
Cash provided by / (used for) financing
10,339,530
activities 11,806,284 1,644,663 (5,235,826) (9,365,111) (5,053,729) - - - - -

Investing activities
Capital expenditure (4,438,053) - - - - - - - - - -
Acquisitions - - - - - - - - - - -
Cash (used for) / provided by investing(4,438,053)
activities - - - - - - - - - -

NET CASH 500,000 (500,000) - - - 13,227,019 29,479,886 44,356,781 59,460,837 77,581,198 118,444,898

Cash balance brought forward 500,000 - - - - 13,227,019 42,706,905 87,063,686 146,524,523 224,105,721
Cash available for appropriation 500,000 - - - - 13,227,019 42,706,905 87,063,686 146,524,523 224,105,721 342,550,619
Dividend - - - - - - - - - - -
Cash carried forward 500,000 - - - - 13,227,019 42,706,905 87,063,686 146,524,523 224,105,721 342,550,619

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12 KEY ASSUMPTIONS

12.1 Cash Flow Assumptions

Description Details
Accounts Receivable Cycle (In days) 30
Accounts Payable Cycle (In days) 30
Equipment Spare Parts Inventory (In months) 1

12.2 Revenue Assumptions

Description Details
Sale Price Per Kg Rs. 730
Growth in Sales Price 10%
Maximum Saffron In Kg 13 Kg

12.3 Financial Assumptions

Description Details
Debt 40
Equity 60
Interest Rate On Debt 16
Debt Tenure 5

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