AMERICAN COLLEGE OF TECHNOLOGY

DEPARTMENT OF BUSINESS STUDIES

MASTERS OF BUSINESS ADMINISTRATION PROGRAM

Innovative Solutions: Establishing Aeroponic Farming Business

A Project Submitted to the Department of Business Studies of the American

College of Technology as a Partial Fulfillment of the Requirement of the
Degree of Master of Business Administration

Theodros Abebe
Advisor: Sitina A. (Asst.prof.)

September, 2023
Addis Ababa, Ethiopia
 DECLARATION

I, Theodros Abebe Alemayehu hereby declare that a project work entitled “Innovative Solutions:
Establishing Aeroponic Farming Business ”submitted to The Department of Business studies of
American College of Technology in partial fulfillment of the requirements for the award of the
degree of Master of Business Administration is a record of original work done by me during
2022/2023 academic year under the supervision and guidance of Sitina A.(Asst.prof) and it has
not formed the basis for the award of any Degree/Diploma/Associate ship/Fellowship or other
similar title of any candidate of any university.

Place: Addis Ababa

Date: _____________

__________________________________
Signature of the Candidate
 CERTIFICATE

This is to certify that the project work entitled “Innovative Solutions: Establishing Aeroponic
Farming Business ”submitted to the Department of Business Administration, MBA Program in
partial fulfillment of the requirements for the award of the Master of Business Administration
is a record of original project work done by Theodros Abebe Alemayehu during the period
2022/2023 academic year under my supervision and guidance and the thesis has not formed the
basis for the award of any Degree/Diploma/Associate ship/Fellowship or other similar title of any
candidate of any University and it complies with the regulation and accepted standards of the
College.

Name of Advisor: ________________________

Signature: ___________________
Date: __________________
 APPROVAL SHEET

AMERICAN COLLEGE OF TECHNOLOGY

DEPARTMENT OF BUSINESS STUDIES
MASTER OF BUSINESS ADMINISTRATION PROGRAM
INNOVATIVE SOLUTIONS: ESTABLISHING AEROPONIC FARMING
BUSINESS

By: Theodros Abebe Alemayehu

ID: RMBA-317-21A

Approved by:

Advisor

-------------------------- -------------------------- -----------------

Name Signature Date

Internal Examiner

-------------------------- -------------------------- -----------------

Name Signature Date

External Examiner

-------------------------- -------------------------- -----------------

Name Signature Date
 ACKNOWLEDGMENT
First and foremost, I want to give my thanks to Almighty God for giving me the chance to enjoy
the fruits of my endeavor.
Second, I thank my advisor Sitina A. (Asst. Prof.) for her incessant guidance, perspicacious
thoughts, constructive criticism, and great efforts to clarify things clearly and easily throughout
my project work period.
Third, my profound thanks go to the department head Sitina A. (Asst. Prof.) for her support and
facilities extended throughout this research work.

Fourth, I thank the dean of the college Dr.Hailemichael for the co-operation, support, and needs
rendered throughout my study period.

Fifth, I wish to express my gratitude to my friends, relatives, colleagues, and students for all the support
and help that need to be extended to me for the completion of this study.

Sixth, I also extend my gratitude to the staff members and management body of Ethiopian
Agricultural Business Corporation for their cooperation in providing necessarily data.

Furthermore, my indebted gratitude is expressed to all of my families and friends for their
encouragement in completing this research paper, especially for my parents.
Table of Contents

1. Introduction 1
1.1. Background of the Project 3
1.2.1. General Objective 4
1.2.2. Specific Objective 4
1.3. Statement and Justification of the Problem 5
1.4. Scope of the Project 6
2. Project Concept 7
2.1. Opportunity Study 7
2.2 The Project Concept and Profile 8
2.3 Preliminary Study 9
3. Project Methods and Procedures 10
3.1 Situational Analysis 10
3.1.1 SWOT Analysis 10
3.2 Problem Tree Analysis 11
3.3 Objective Tree Analysis 12
3.4 Alternative Tree Analysis 13
3.5 Logical Framework Approach 14
4. Project Preparation 15
4.1. Markets and Demand Analysis 15
4.1.1. Demand – Supply Gap 21
4.1.2. Target Market 22
4.2. Raw Materials and Supplies Study 22
4.2.1. Raw Materials 22
4.2.2. Utility Cost 23
4.2.3. Other Supplies 23
4.3. Location and Site Assessment 23
4.4. Production Program and Plant Capacity 24
4.4.1. Projected Farm Layout 24
4.4.2. Farm Capacity 25
4.4.3. Production program 26
4.5. Technology Selection 27
4.5.1. Farm Equipment 27
4.5.2. Office Equipment and Furniture 28
 4.6. Organizational Structure and Human Resource 29
4.6.1. Form of the Organization 29
4.6.2. Organizational Structure 29
4.6.3. Labor Cost 30
4.7. Social Analysis 31
4.8. Economic Analysis 31
4.9. Financial Analysis 32
4.9.1. Initial investment cost 32
4.9.2. Production costs/Operational Costs 33
4.9.3. Marketing costs 33
4.9.4. Projection of Cash Flow 34
4.9.5. Financial Evaluation 36
4.9.5.1. Net Present Value (NPV) 36
4.9.5.2. Internal Rate of Return (IRR) 37
4.9.5.3. Benefit Cost Ratio (BCR) 37
4.9.5.4. Payback Period (PBP) 38
4.9.5.5. Accounting Rate of Return 38
4.9.5.6. Break Even Analysis 39
5. Conclusion and Recommendation 41
5.1. Summary 41
5.2. Conclusion 41
5.3 Recommendations 41
References 42
Appendices 45
List of Figures

Figure 1 SWOT Analysis 10

Figure 2 Problem Tree Analysis 11
Figure 3 Objective Tree Analysis 12
Figure 4 Alternative Tree Analysis 13
Figure 5 Pie chart 1 15
Figure 6 Pie chart 2 16
Figure 7 Pie chart 3 17
Figure 8 Pie chart 4 17
Figure 9 Pie chart 5 18
Figure 10 Pie chart 6 19
Figure 11 Pie chart 7 19
Figure 12 Pie chart 8 20
Figure 13 Pie chart 9 21
Figure 14 Farm layout 24
Figure 15 Organizational structure 29
Figure 16 NPV formula 36
List of Tables

Table 1 Logical Framework Approach 14

Table 2 Response 1 16
Table 3 Response 2 16
Table 4 Response 3 17
Table 5 Response 4 18
Table 6 Response 5 18
Table 7 Response 6 19
Table 8 Response 7 20
Table 9 Response 8 20
Table 10 Response 9 21
Table 11 Raw Materials 22
Table 12 Utility 23
Table 13 Other Supplies 23
Table 14 Farm capacity 26
Table 15 Production Program 26
Table 16 Projected sales 26
Table 17 Farm Equipment 27
Table 18 Office Equipment and Furniture 28
Table 19 Labor Cost 30
Table 20 Initial Investment 32
Table 21 Operational Cost 33
Table 22 Income Statement 34
Table 23 Cash flow from operating activities 34
Table 24 Cash flow from investing activities 35
Table 25 Cash flow from financing activities 35
Table 26 Cash and equivalents End of year 35
Table 27 Net Present Value 36
Table 28 Payback Period 38
Table 29 Fixed and variable costs 39
Table 30 Break-Even analysis 40
Acronyms

AGP- Agricultural growth program

CO2- Carbon Dioxide

CSA- Central Statistical Agency

FAO - Food and Agriculture Organization

GDP - Gross Domestic Product

NASA - National Aeronautical and Space Administration

USAID - United States Agency for International Development

SWOT- Strength, Weakness, Opportunity, Threat

 Executive Summary

Innovative ways of producing food is needed to sustain the ever-growing population of the world
and one of these innovations is Aeroponic farming. This method of farming in various researches
is quoted to be the future of producing food. It is a method by which vegetables and fruits are
produced in an air or mist environment without a need for soil as a growing medium. Furthermore,
it is proposed to be water efficient system than the conventional way of farming with soil as a
medium of growth. This can have an effect on the cost of production. The proposed business should
have one farm location as it is a growing area of research it could be the safest option.

The business that is proposed will have four products namely Green chili, Tomato, Potato and
Cabbages. As everyone consumes vegetables and fruits competitors in this sector can range from
small vendors to large organizations. Trying new solutions for problems as a business can be risky,
as startup costs can rack up before even beginning production.

This project looked at both secondary and primary sources to give a comprehensive and in-depth
analysis of the proposed business project and how it can be implemented as a business if it is
socially, economically and financially feasible.
 1. Introduction

According to CSA (2021) agriculture is a major activity in Ethiopia, with approximately 84 percent
of the country's population engaged in various agricultural activities and earning income through
household consumption to support their livelihoods. In addition, the country generates most of its
foreign exchange income from the sale/export of agricultural products abroad, with the sector
currently contributing about 42 percent of the country's GDP and most importantly, the sector is
considered a major source of capital. To build the future of industrialized Ethiopia, it has once
again proved that the sector will play a vital role in bringing about the sustainable economic
development of the country in the coming years. Moreover, it is one of the main employment
sectors with about 80% of the country’s population depending on the agricultural sector for their
livelihoods. (Njeru, Grey, Kilawe ,2016; Aweke, M. Gelaw, 2017).

Innovative farming techniques must be utilized in order to mitigate or solve some of the problems
the agriculture sector is facing such as water consumption and large land requirements. One of
those innovative solutions is the vertical farming technique. (Killebrew, 2010; Al Shrouf ,2017).
Vertical farming techniques such as Hydroponics, Aeroponics and Aquaponics are modern
agriculture systems that utilize nutrient-rich water rather than soil for plant nourishment
(Bridgewood, 2003; Al Shrouf ,2017). Because it does not require fertile land in order to be
effective, these new modern agriculture systems require less water and space compared with the
conventional agricultural systems which needs soil for plant nourishment. ( Marginson, 2010).
One of the three vertical farming techniques is Aeroponic farming. The National Aeronautical and
Space Administration (NASA) is responsible for developing this innovative indoor growing
technique. In the 1990s, NASA was interested in finding efficient ways to grow plants in space
and coined the term “aeroponics,” defined as “growing plants in an air/mist environment with no
soil and very little water.” (Birkby, 2016).
Nowadays, aeroponics is being applied successfully in South America (Mateus R., 2011) and
attempts are made to introduce this technology also in some African countries (Otazu , 2010
;Gopinath, Vethamoni, & Gomathi, 2017)

1
Compared to other systems like Hydroponics, Aeroponics is more advantageous because of the
fact that the roots of plants are suspended thus, the plants are able to absorb the nutrient-rich water
solution and is able to remain oxygenated which will in turn harvest better quality and more food
due to better aeration available to roots, greater exposure to CO2 and while having minimal amount
of water required compared to hydroponic systems. ( Gopinath, Vethamoni, and Gomathi, 2017).

Urban farmers, agronomists, environmentalists, architects, public health experts and more have
joined this small revolution to collectively find a way to save our food-insecure, hyper-urban future
(García-Caro ,2018). Many technical experts have adopted the concept of vertical farming to
advance the fields of robotics, aeroponics, aquaponics, and hydroponics (Ragaveena, Shirly,
2021). Non-profit organizations that aim to promote environmental protection and local economic
prosperity endorse the concept of vertical farms. Similarly, commercial companies looking to meet
the demand for local products have endorsed the concept. (Cohen and Reynolds 2015).
Additionally, governments looking for ways to improve domestic food security are funding these
efforts. Many countries, including South Korea, Japan, China, Germany, United Arab Emirates,
China, France, India, Sweden, Singapore, and the United States, have come together to discuss
vertical farming. (Al-Kodmany, 2018). They have repeatedly advocated this concept as an integral
part of the long-term sustainability of cities. (Despommier,2014)

2
 1.1. Background of the Project

Conventional agricultural (geoponic) practices can have a variety of negative environmental

impacts. “Conventional has been historically defined as the practice of growing crops in soil, in
the open air, with irrigation, and the active application of nutrients. Some of the negative impacts
of conventional agriculture include the high and inefficient use of water, large land requirements,
high concentrations of nutrients consumption, and soil degradation (Killebrew, Wolff and Walls ,
2014).
Knowledge of plant water and nutrient uptake is essential for the development of controlled
strategies that increases the likelihood of providing plants with the amount of water and nutrients
required for maximal growth and development. (Kläring, 2001).
Aeroponics is a technological leap from traditional hydroponics. An aeroponics system is defined
as a closed air and water/nutrient ecosystem that has little water and direct sunlight and facilitates
rapid plant growth in the absence of soil or media (Cooper, 2013). The main difference between
hydroponics and aeroponics systems is that the former uses water as a growth medium whereas
the latter does not. Aeroponics uses a mist or nutrient solution instead of water. It requires little
water (95% less water than traditional growing methods) and takes up less space, so you can grow
plants effectively and efficiently. (Cooper ,2013). The benefits of an Aeroponic modern
agriculture systems are numerous. In addition to higher yields and water efficiency, when practiced
in a controlled environment, these new modern systems can be designed to support continuous
production throughout the year (Brechner and Both , 2014).
In regards to Aeroponic technology in Ethiopia, Aeroponic units had been introduced at the
research level in Ethiopia, Kenya, Rwanda and Uganda at the respective national agricultural
research systems (Kyamanywa , 2011;Tessema & Dagne,2018). Preliminary results from these
pilot countries are promising and there is need to promote the technology to private seed sectors
(Kyamanywa , 2011; Mbiri , 2015; Tessema & Dagne, 2018).

3
1.2. Objective of the Project

1.2.1. General Objective

The general objective of the project is to establish an Aeroponic farming business
that produces selected fruits and vegetable crops, aiming to achieve positive socio-
environmental influence on the community, generate profitable financial returns, create
awareness in the surrounding community, and identify potential competitors in the sector.

1.2.2. Specific Objective

 To improve the socio-environmental conditions of the community, such as reducing

water consumption and minimizing pesticide usage.
 Establishing a financially viable aeroponic farming business that generates sustainable
profits by optimizing crop productivity and market potential.
 Conducting awareness campaigns and community engagement programs to educate
and involve local communities in the benefits and adoption of aeroponic farming for
enhanced food security and economic development .
 Conducting a thorough market analysis to identify potential competitors and develop
strategies to maintain a competitive edge in the aeroponic farming sector are any.

4
 1.3. Statement and Justification of the Problem

A rapid increase in world population should be offset by the same or even higher food production
rates. The way we grow food must evolve to sustainably feed a growing world population. (Al
Shrouf, 2017). In accordance with that fact, the world bank report (2021) stated that Ethiopia’s
population has passed 120 million. In Ethiopia, about 95% of major crops (cereals, legumes,
oilseeds, vegetables, root crops, fruits, cash crops, etc.) are produced by smallholder farms
(Aweke, 2017). However, these farms face various constraints that affect crop productivity. Major
obstacles include low soil fertility, severe soil degradation, high reliance on rainfall, low
availability and quality of seeds and fertilizers. (Ogato,2014; Gezie and Tejada , 2019).
Conventional agricultural systems use large quantities of irrigation fresh water and fertilizers, with
relatively marginal returns (Pfeiffer, 2003). As stated by Gurley, (2020) the traditional method of
growing crops in open ground using irrigation, fertilizers (nutrients) and pest and weed control can
have many downsides in modern agriculture such as high and inefficient use of water, vast land
requirements, large amounts of nutrients consumption, and soil depletion are only a few of the
adverse effects. (Walls, 2014; Killebrew and Wolff, 2021).
The need for large amounts and high-quality vegetable products to meet the growing demand of
the world population justifies the development of technologies that synchronize the water &
nutrient solution in order to achieve crop yield optimization. (Kläring, 2001; AlShrouf, 2017).
Aeroponics is actually a subgroup of hydroponics, except that it uses no growing medium at all,
and the plant grows by misting nutrient-rich water solution. Plant roots in this system are
suspended in a dark enclosure, while a nutrient-dense solution is sprayed on the roots at certain
intervals (AlShrouf, 2017). The system uses 98 percent less water, 60 percent less fertilizer, 100
percent fewer pesticides and herbicides, and maximizes plant yield by 45 percent to 75 percent
more than a conventional geoponic farming (Stoner, 1983; NASA, 2006 ; Kishorekumar,2021).

5
 1.4. Scope of the Project

This project will focus on building a sustainable and profitable Aeroponic farming business. The
main focus will be on producing vegetables and fruits of good quality and also rich in nutrients
such as Green chili, potato, tomato and cabbages. The farm should be produce higher yields
compared to conventional farmers and should have continuous production all year round. The farm
will be located at Lemi Kura sub city of Addis Ababa. This is not to say the project can only be
applied in urban areas, the project is fit even as a government initiative in rural areas with proper
training.

6
 2. Project Concept

2.1. Opportunity Study

As stated in the introduction agriculture makes up the largest part of Ethiopia’s economy. With the
rapid rise in population and various factors that hinder agricultural production it, is of the utmost
importance to find ways to circumvent these hindrances. Addis Ababa is the most densely
populated city in the country with that in mind as stated in the previous sections it is getting
challenging feeding people with conventional farming as population is increasing rapidly. Hence
newer ways of farming have been developed that can produce better yields in comparison.
According Abdurhaman (2022) food price inflation in Ethiopia is well above 30%. This can be a
good opportunity as Aeroponic farming uses significantly less water, less fertilizer and no
pesticides which will have a positive impact on the cost of vegetables and fruits that are produced
when compared to conventional farming. In turn, if the cost of production is lower, then the
business can enter the market with a competitive price by offering cheaper prices on products for
consumers. With regard to government policies, the Ethiopian government is implementing
Agricultural growth program (AGP) whose primary objective is to increase agricultural
productivity and market access with main components being Agricultural production and
commercialization while also supporting small-scale rural infrastructure development and
management. Finally, multiple organizations are working on agricultural projects such as Food
and Agriculture Organization of the United Nations (FAO), Farm Africa which has led several
climate-smart based agriculture methods, the Hunger Project which has developed the Epicenter
Strategy to mobilize Ethiopians so that they may meet their own needs. The Epicenter Strategy
involves the establishment of epicenters, a coalition of 5,000 to 15,000 people who work to
become leaders and initiate change on a local level and USAID’s Feed the Future initiative which
focuses on helping the vulnerable gain access to markets.

7
 2.2 The Project Concept and Profile

With a rising population and high inflation on food prices as indicated in previous section of this
proposal these kinds of projects can have positive impact in reducing food prices as it consumes
less resources. The enormous demand for water resources and thus food supplies has led to the
development of many new trends and innovative methods in agriculture with complex agricultural
production systems. Aeroponic farms produce nutrient rich fruits and vegetables with greatly low
water usage and without any pesticides and also lesser land requirements than conventional
farming. One of the main advantages of these modern cultivation systems is the conservation of
water and less or no use of agrichemicals which are dangerous to the human body when applying
and especially when eating in the food (AlShrouf, 2017). The stakeholders of this project may
include Ministry of Agriculture, International food policy institute, FAO, USAID, Farm Africa,
Purpose Black, Urban agriculture office of respective sub city. Moreover, beneficiaries are
consumers who want to buy affordable and nutritious fruits and vegetables. The farm will be water
efficient and supply the roots with nutrients needed for growth. The aeroponic tower can be bought
from outside Ethiopia or can be partially made here in the country. This could be one of the
stumbling blocks that this project might face as it is difficult to secure foreign currency in Ethiopia.
Hence, partially manufacturing could solve that problem. Another hindrance that the project might
encounter is in-house production of the nutrient solution as it may need a professional in
agriculture that is experienced in producing nutrient solutions for Aeroponic farms. Finally, the
end goal of the project is to be a profitable Aeroponic farming business that produces all year
round nutritious, and affordable vegetables and fruits.

8
 2.3 Preliminary Study

The primary objective of this project is to establish a profitable aeroponic farming business while
also making positive social and environmental contributions to its surrounding area. Initially, the
project will be located at a single farm site equipped with aeroponic towers and beds. Each tower
is capable of supporting approximately 30 plants, with variations in plant types such as Green chili,
Tomato, Potato and Cabbages, and other species. The revenue and profit projections are subject to
fluctuations due to the varying crop yields. To enhance self-sustainability and reduce foreign
currency requirements, through using specific professionals as the project aims to explore the
possibility of producing nutrient solutions in-house, thereby minimizing reliance on imports.

9
 3. Project Methods and Procedures

3.1 Situational Analysis

One of the tools for situational analysis is SWOT analysis. This projects SWOT analysis is as
follows.

3.1.1 SWOT Analysis

Strengths
Weaknesses
Water efficient system
High yield per square meter
Requires professional knowhow
Pesticide free
Requires bigger initial investment than
Foods rich in nutrients
conventional farming

Opportunities Threats
High inflation of food products Lack of foreign currency to import
equipment
Lack of adequate supply of fruits and
Shortage of skilled professionals in the
vegetables
field of Aeroponics

Figure 1 SWOT Analysis

10
 3.2 Problem Tree Analysis

Loss of Increase in Increase in

Hunger
Productive man Food Prices infant
power
Mortality

Food
Insecurity

Lack of Lack of policy Global Warming

Lack of
Technology Farming land and Strategies

Lack Carelessne Lack of Lack of

Lack of Growing Lack of
of Recurring ss of knowled action
finance Population Attenti
Knowl conflicts Stakeholde ge by to
on by
edge rs officials climate
the
change
global
Comm
unity

The problem tree helps to find solutions by mapping out the anatomy of cause and effect of the
main problem and also to progress to objective tree analysis and finally to the chosen alternative
the project seeks to address in alternative tree analysis.
Figure 2 Problem Tree Analysis

11
 3.3 Objective Tree Analysis

Increase in Decrease in Reduction in Decrease in

Productivity Food Prices hungry citizens infant
Mortality

Food
Availability

Availability of Availability of Lack of policy Action Against

Technology Farm land and Strategies Climate change

Adequate Adequate Decrea

Adequate Adequate Controlled Attenti
Sustainable attention of knowledge se in
finance Knowled Population on by
Peace Stakeholde by global
ge Global
rs officials Tempe
Comm
rature
unity

Objective Tree is a graphic tool for displaying a hierarchy of results if the causes and effects
stated in the problem tree analysis are solved.

Figure 3 Objective Tree Analysis

12
 3.4 Alternative Tree Analysis

Increase in Decrease in Reduction in Decrease in

Productivity Food Prices hungry citizens infant
Mortality

Food
Availability

Availability of Availability of Lack of policy Action Against

Technology Farm land and Strategies Climate change

Adequate Adequate Decrea

Adequate Adequate Controlled Attenti
Sustainable attention of knowledge se in
finance Knowled on by
Peace Population Stakeholde by global
ge Global
rs officials Tempe
Comm
rature
unity

Alternative Alternative
Alternative Alternative
1 4
2 3

Figure 4 Alternative Tree Analysis

This Project is a solution based on Alternative 1 as it combines finance and knowledge to implement
the technology of Aeroponic farming to contribute to solving Food insecurity.

13
 3.5 Logical Framework Approach
Table 1 Logical Framework Approach

Narrative Objectively Means of Important

Summary Verifiable Verification Assumptions
Indicators
Goals:  Increased -Field Observation Report writing will be
conducted periodically
Contributing to Food Production yield -Periodic reports
and stakeholders will
Security in the area the per square meter cooperate
project will be with less
implemented in. resources

Purpose:  A working -Field observation The communities around

farming business the project location will
-Evaluation
Establishing sustainable that produces start using the fruits and
aeroponic farming -Periodic Reports vegetables produced by
fruits and
business Aeroponic farming
vegetables for
market

Output:  One Aeroponic -Field observation Licensing authority

farm cooperation
-Evaluation
Profitable Aeroponic  Trade License Trainees retain the
Farming business and Product information that they
Copy right were given
 Trained
personnel
 In house
production of
nutrient solution

Input:  Trainees - Registering and Sufficient funding is

 Independent Reporting available
 Requirement Gathering
 Financing Contractors - Lump sum cost Governmental
 Recruitment  Equipment - Evaluation organizations are
 Procurement
 Paperwork cooperative
 Identify government org.
to work with Discussions with
 License
stakeholders proceed as
 Identify Private Org. To
work with planned
 Land Acquiring

14
 4. Project Preparation

In this chapter, we will look at how the project will be implemented by assessing its feasibility
from various aspects. These aspects include market, organization, socioeconomic, and financial.
Project feasibility is the study of various elements of a project to determine whether the project is
likely to succeed. Before starting a project, companies can assess the feasibility of the project,
identify obstacles, formulate strategies to overcome them, and ultimately attract potential
investors.

4.1. Markets and Demand Analysis

In this subsection, we will look at the results of a survey questionnaire that was filled out by
fifty-two respondents. These questions are worded and organized in such a way that lets us
know if there is a demand for our products while also assessing the market price for specified
vegetable products. It’s assumed that the respondents who answered these questions gave
honest answers. The questionnaire was prepared in the Amharic language to make it
accessible but in this section, it will be accompanied by its respective translation to English.

1. What’s your age range?

Figure 5 Pie chart 1

15
 Respondent Answers
<18 0
19-25 7
26-55 39
>55 6
Table 2 Response 1

Out of a total of 52 respondents to this question, none of them were aged less than 18. Seven
of them were ages 19 to 25 and a majority of them thirty-nine to be exact were aged 26 to
55. Lastly, six of the respondents were aged above 55.

2. Are vegetable prices fair?

Figure 6 Pie chart 2

Respondent Answers
Yes 6
No 46
Table 3 Response 2

Out of a total of 52 respondents to this question, an overwhelming forty-six of them think

vegetable prices are not fair while to six of the respondents, it seemed fair.

16
 3. Are you willing to buy vegetables free from pesticides and produced in a new way?

Figure 7 Pie chart 3

Respondents Answer
Yes 50
No 1
Not sure 1
Table 4 Response 3

Out of a total of 52 respondents to the above question, fifty respondents are willing to buy
pesticide-free vegetables that are produced in a new method. While one respondent is not
willing and another one is not sure about it.

4. What is your monthly income?

Figure 8 Pie chart 4

17
 Respondents Answer
10,000 and less 15
10,010-99,999 34
100,000-200,000 2
Above 200,000 1
Table 5 Response 4

Out of a total of 52 respondents to this question, fifteen of the respondents earned 10,000
ETB and less while thirty-four of the respondents earn between 10,010 to 99,999.
Furthermore, two of the respondents earn between 100,000 to 200,000. Finally, one person
earns above 200,000.
5. How often do you shop for vegetables?

Figure 9 Pie chart 5

Respondents Answer
Daily 9
Weekly 35
Monthly 8
Table 6 Response 5

Out of the 52 respondents to this question, nine of them shop for vegetables daily, while the
majority thirty-five of the respondent’s shop for vegetables weekly. And this is a good
indicator that most people shop on a weekly basis. Finally, eight of the respondent’s shop
monthly.

18
 6. What is the average price you pay for 1 kilogram of cabbage?

Figure 10 Pie chart 6

Respondents answer
10 to 20 8
21 to 30 25
31 to 40 13
Above 41 5
Table 7 Response 6

Out of the 51 respondents to this question, eight of the respondents paid on average 10 to
20 etb for a kilogram of cabbage while twenty-five of the respondents paid an average of 21
to 30 ETB. Moreover, thirteen of the respondents paid an average between 31 and 40 ETB.
Finally, five people paid above 41 ETB.
7. What is the average price you pay for 1 kilogram of green chili?

Figure 11 Pie chart 7

19
 Respondents Answer
20 to 40 7
41 to 60 14
61 to 80 11
Above 81 19
Table 8 Response 7

Out of a total of 51 respondents to this question, seven of them paid an average of 20 to 40

for a kilogram of green chili. Fourteen of them paid an average of 41 to 60 while eleven of
the respondents paid between 61 to 80 ETB. The majority of the respondents nineteen of
them paid 81 ETB and above.
8. What is the average price you pay for a 1 kilogram of tomato?

Figure 12 Pie chart 8

Respondents Answer
20 to 40 11
41 to 60 16
61 to80 18
Above 81 6
Table 9 Response 8

Out of a total of 51 respondents to this question, eleven of them paid from 20 to 40 for a
kilogram of tomato. Sixteen of them paid between 41 and 60 and eighteen of them paid
between 61 and 80. Finally, Six of the respondents paid above 81 ETB for a kilogram of
tomato.

20
 9. What is the average price you pay for 1 kilogram of potato?

Figure 13 Pie chart 9

Respondents Answer
10 to 20 12
21 to 30 22
31 to 40 10
Above 41 6
Table 10 Response 9

Out of the total 50 respondents to this question, twelve of them paid between 10 to 20 ETB
per kilogram of potato while twenty-two respondents paid between 21 and 30 which is the
majority of the respondents. Furthermore, ten of the respondents paid from 31 to 40 ETB
and finally six of the respondents paid above 41 ETB per kilogram.

4.1.1. Demand – Supply Gap

In the introduction section of this document, there are pure indications both from primary
and secondary sources that there is unmet demand with regard to vegetables in Ethiopia as
a country and as a city in Addis Ababa. With the growing population of the city need for
affordable vegetable products is going to be ever-increasing. This factor is also influencing
food prices in a negative way which is making food prices skyrocket. This proposed

21
 business will strive to address this gap and also in turn make positive financial gains for the
business owners.
4.1.2. Target Market

Aeroponic Farming Business will seek to address consumers located in the Lemi-Kura sub-
city of Addis Ababa as stated in the scope of the proposal. As it is a new business and a
newer way of producing food that has not been done in the country it might be risky to
supply vegetables for the whole city while starting. But if the business succeeds for a
considerable amount of time and has a stronghold in the market for the respective sub-city,
it can be scaled up to a larger business.

4.2. Raw Materials and Supplies Study

4.2.1. Raw Materials

In sourcing information on the raw materials needed for the project all of
the listed items only excluding the seeds are to be imported from abroad.
Because all the mentioned raw materials are important in the
implementation of Aeroponic farm. The prices are converted to Ethiopian
birr with a parallel market exchange rate at the time of writing this
proposal.
Raw Materials Price Yearly Usage Amount

Seaweed extract 400 ETB 1,460 kg 584,000

powder (Nutrient
powder) / 1 kg

Vermiculite /100kg 5000 ETB 300 kg 15,000

Seed/ 1kg 1500 ETB 4 kg 6,000

25mm Rockwool slabs 30,000 ETB One order 30,000

100,000 pieces(one
order)

Total =635,000

Table 11 Raw Materials

22
 4.2.2. Utility Cost

Electric usage is not an exact amount as prices vary regarding usage as

indicated by Ethiopian Electric Utility employees. Hence, a Rough
estimate is used below.
Utility Monthly Usage Amount
Electric 250 kwh 5000
Water 214 cbm 600
Total =5600
Table 12 Utility

4.2.3. Other Supplies

Item Quantity Amount

Paper 1 pack 650
Pen 1 pack 500
Liquid soap 20 liters 1600
Folder 2 piece 200
Total =2,950
Table 13 Other Supplies

4.3. Location and Site Assessment

The location farm will be situated on is going to be Lemi-kura sub-city Ayat area. The
reason for choosing this area is because it’s one of the largest residential areas in the
city of Addis Ababa. Furthermore, the rent prices relative to areas close to the city center
is low. Being located close to customers also will benefit in transport cost being low and
also easier for customer’s convenience. For these reasons, the farm and shop will be
located in that area.
The farm will have a total area of 1100 sqm of which 1000 will be used for farming-
related use and 100 sqm will be used for shop and storage.

23
 4.4. Production Program and Plant Capacity

4.4.1. Projected Farm Layout

Tomato
Water reservoir
Towers

Green Chili
Towers

Potato Bed

Cabbage
Towers

Figure 14 Farm layout

24
4.4.2. Farm Capacity

As it is an aeroponic farm and can be expanded vertically the capacity can vary. It
depends on the quality of the produce and consultation with an agricultural professional
and adjusts accordingly but these are modest estimates of farm capacity based on claims
by secondary sources when applied in the above setup. Before planting takes place the
seeds need to be developed in vermiculate and Rockwool slabs then it gets transplanted
in to the aeroponic farms. One Tower is approximately 2 meters.
Cabbage Tower Section Area 128 sqm

Towers 256

2 towers/ sqm

Production 20 kg /tower

20 plants/ tower

Total batch Yield 3 months 5,120 kg

Tomato Tower Section Area 144 sqm

Towers 144

1 tower/ sqm

37.5 kg/tower

15 plants/ tower

Total batch Yield 3 months 5,400 kg

Potato Bed Section Area 224 sqm

4 Beds joined together (7mx8m Each

bed)

6 plants/ sqm

Total batch Yield 3 months 1,344 kg

Green Chili Section Area 128 sqm

25
 Towers 128

1 tower / sqm

45 kg/ tower

12 plants/ tower

Total batch Yield 3 months 5,760 kg

Table 14 Farm capacity

4.4.3. Production program

Product Price/ Kg 2 batches/year in kg Sales

Cabbage 25 10,240 256,000

Tomato 45 10,800 486,000

Potato 21 2,688 56,448

Green Chili 72 11,520 829,440

Total =1,627,888 ETB

Table 15 Production Program

According to trading economics the food inflation rate is expected to drop to 18% in
2024 assuming it stays that way for ease of calculation the projected 5 year of sales .

Year 1 2 3 4 5

Inflation 0% 18% 18% 18% 18%

rate

18%

Sales 1,627,888 1,920,907.8 2,266,671.2 2,674,672 3,156,112.9

forecast

Table 16 Projected sales

26
 4.5. Technology Selection

4.5.1. Farm Equipment

Item Unit price Quantity Item Cost

Water pump 2 hp 20,000 5 100,000

Water Tanker 40,000 4 160,000

PVC pipe 200mm 3,000 200 600,000

Shade and board 500,000

construction

Piping 300,000

Misting Nozzle 250 800 250,000

Plastic Crates 700 100 70,000

Leaf Cutters 1000 10 10,000

Generator 250,000 1 250,000

Fan 10,000 4 40,000

Bucket 100 20 2,000

Weighing Scale 7,000 1 7,000

Seed Starter Tray 100 200 20,000

Total= 2,309,000

Table 17 Farm Equipment

27
 4.5.2. Office Equipment and Furniture

Item Unit Price Quantity Item Cost

Computer 20,000 1 20,000

Printer 12,000 1 12,000

Cash Register 15,000 1 15,000

Office Chair 3,000 4 12,000

Table 7000 3 21,000

Plastic chairs 1,200 10 12,000

Doormat 500 2 1,000

Water 15,000 1 15,000

filter/refrigerator

Fan 3,000 1 3,000

Total= 111,000

Table 18 Office Equipment and Furniture

28
 4.6. Organizational Structure and Human Resource

4.6.1. Form of the Organization

The company will be a sole proprietorship. The vast majority of small businesses start out
as sole proprietorships. Easiest and least expensive form of ownership to organize. Sole
proprietors are in complete control, and within the parameters of the law, may make
decisions as they see fit.

4.6.2. Organizational Structure

A functional organizational structure is a team structure that groups employees into

different departments based on areas of expertise.

Owner/General
Manager

Farming System
Security Sales Finance
Expert Technician

Farm Farm Sales Assistant

Assistant Assistant 2 Assistant Technician

Figure 15 Organizational structure

29
 4.6.3. Labor Cost

Position Monthly Salary Yearly Salary

Security 2,500 30,000

Farming Expert 20,000 240,000

Farm Assistant 7,000 84,000

Farm Assistant 2 7,000 84,000

Sales 6,000 72,000

Sales Assistant 4,500 54,000

System Technician 10,000 120,000

Assistant Technician 6,000 72,000

Finance 12,000 144,000

Total= 75,000 900,000

Table 19 Labor Cost

30
4.7. Social Analysis

Social analysis is a process that aims to identify the social dimensions of projects, as
well as analyze the different stakeholder perspectives and priorities. Buying food is a
basic necessity for society. With the rapid increases in food prices, people are finding it
more difficult to afford food. The government is trying urban agriculture in various ways
to alleviate this problem. If solved it will have a positive impact on the quality of life
for citizens as they can afford and have food available for consumption. This project
will coincide with what the government is trying to achieve in urban agriculture as it’s
a project which will provide the community with affordable and nutritious produce. But,
it should be explained how the food is produced to customers on a brief monolog basis
as it will lead to people having a better understanding of the project. Hence, a project
that helps its community to have access to a basic need and in no way harm the
surrounding in which it will be built is a socially feasible project.

4.8. Economic Analysis

Economic analysis helps determine, whether a project contributes to a society’s or a

country’s welfare and overall economy. The proposed business project will contribute
to job creation as it will have nine employees who will have jobs and salaries that will
be taxed. Secondly, the business will pay taxes to the government. While also chipping
in into poverty alleviation as it will have a positive impact in both the aforementioned
aspects and also providing food for the community at low prices. With the points
described above the proposed business can be considered economically feasible.

31
 4.9. Financial Analysis

The following section will shed light on the financial feasibility of Aeroponic Farming
business. It will address various aspects of financial feasibility from different costs, and
cash flow projections to numerous methods of financial evaluation which include the
Payback period, Accounting rate of return, Net present value, Internal rate of return, and
break-even analysis. The initial investment of the project will be sourced from the owner
of the project. The Salary of the employees is taken as per current market price. The cost
of capital taken is 20 % as 34% stated by CSA is high and unmanageable but banks loan
on 20 % interest rate rather than 7% provided by the central bank. Utility costs are
assumed to be constant for calculations.

4.9.1. Initial investment cost

The total Initial investment cost for the project of Aeroponic tower farming is
estimated to be 3,522,575. Of this total cost, 2,420,000 will be a fixed cost and
1,102,575 will be the initial working. The cost breakdown is as follows:

Description Cost

1. Farm Equipment 2,309,000

2. Office Equipment and Furniture 111,000

Total 2,420,000

3. Initial Working Capital (See Annex ) 1,102,575

Total Initial Investment 3,522,575

Table 20 Initial Investment

32
 4.9.2. Production costs/Operational Costs

The total price paid for the resources used to manufacture a product or create a
service, such as raw materials, labor, and others, is called the production cost.
Raw material cost per kg

One batch production 17,624 kg

Raw material cost 317,500 ETB

Total cost per kg 18.01 ETB/ kg

Overhead costs per kg

Utility 5,600*3 16,800 ETB

Salary 75,000*3 225,000 ETB

Rent 50,000*3 150,000 ETB

Total= 391,800 ETB

One batch production 17,624 kg

Total Cost per kg 22.23 ETB/kg

Total Cost of production per kg 18.01 + 22.23 = 40.24 ETB/kg

Production Per year per kg 35,248 kg/ year

Cost of goods sold 1,418,379.52

Table 21 Operational Cost

4.9.3. Marketing costs

Marketing cost is the money a business spends on advertising and promoting its
products or services. It includes expenses such as public relations, sales
promotions, direct marketing, and advertising campaigns. Hence the project is
an agricultural project and everyone is familiar with its products it’s not
necessary to pour money into marketing if the chosen area for selling the produce
is accessible to customers it is more than enough.

33
 4.9.4. Projection of Cash Flow

Income Statement

DESCRIPTION Year 1 Year 2 Year 3 Year 4 Year 5

SALES 1,627,888 1,920,907 2,266,671 2,674,672 3,156,112
COST OF GOODS 1,418,379 1,673,687 1,974,951 2,330,443 2,749,922
SOLD
GROSS PROFIT 209,509 247,219 291,719 344,229 406,190
GENERAL AND
ADMINSTRATIVE
EXPENSES
OPERATING 209,509 247,219 291,719 344,229 406,190
INCOME
EARNING BEFORE 209,509 247,219 291,719 344,229 406,190
TAX
TAX 30% 62,852 74,165 87,515 103,268 121,857
NET INCOME 146,656 173,054 204,203 240,960 284,333
Table 22 Income Statement

Statement of Cash flow

Cash flow from operating activities
YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
NET INCOME 146,656 173,054 204,203 240,960 284,333
DEPRICIATION- 411,800 411,800 411,800 411,800 411,800
FARM
EQUIPMENT
DEPRICIATION- 22,200 22,200 22,200 22,200 22,200
OFFICE
INCREASE IN
INCOME
TAXES
PAYABLE
NET CASH 0 580,656 607,054 638,203 674,960 718,333
FROM
OPERATING
Table 23 Cash flow from operating activities

34
 Cash flow from investing activities
YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
PURCHASE 111,000
OFFICE
EQUIPMENTS
PURCHASE 2,309,000
FARM
EQUIPMENTS
NET CASH 2,420,000 0 0 0 0 0
USED IN
INVESTING
Table 24 Cash flow from investing activities

Cash flow from financing activities

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
CAPITAL 3,522,575
CONTRIBUTION
IN CASH
NET CASH 3,522,575 0 0 0 0 0
USED IN
FINANCING
Table 25 Cash flow from financing activities

Cash and equivalents End of year

YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
NET CASH 1,102,575 580,656 607,054 638,203 674,960 718,333
FLOW
BEGNING 0 1,102,575 1,683,231 2,290,285 2,928,488 3,603,448
CASH
BALANCE
ENDING 1,102,575 1,683,231 2,290,285 2,928,488 3,603,448 4,321,781
CASH
BALANCE
Table 26 Cash and equivalents End of year

35
 4.9.5. Financial Evaluation

4.9.5.1. Net Present Value (NPV)

Most people know that money you have in hand now is more valuable than money you collect
later on.Net present value is the present value of the cash flows at the required rate of return of
your project compared to your initial investment. In practical terms, it’s a method of calculating
your return on investment, or ROI, for a project or expenditure. By looking at all of the money you
expect to make from the investment and translating those returns into today’s money, you can
decide whether the project is worthwhile. (Gallo, 2014)

Figure 16 NPV formula

Years Cash flows Df @ 18% Present Value

0 (3,522,575) 1 (3,522,575)
1 580,656 0.847 491,815
2 607,054 0.718 435,864
3 638,203 0.609 388,665
4 674,960 0.516 348,279
5 718,333 0.437 313,911
Total 3,219,206 1,978,534
Net Present Value -1,544,041
Table 27 Net Present Value

If the NPV is positive, accept the project.

If the NPV is negative, reject the project.
If the NPV is zero, be indifferent
The higher the NPV, the better the project is, and Since the NPV is a negative number this
project based on this evaluation is NOT financially feasible.

36
 4.9.5.2. Internal Rate of Return (IRR)

IRR index is massively used as a tool for decision-making by scholars, managers, analysts,
practitioners, and is taught to every student of any business and management school. The IRR
decision criterion suggests to accept a project if and only if the IRR is greater than the cost of
capital (usually, the market rate) and to rank competing projects via their IRRs: the higher a project
IRR the higher its rank. (Magni, 2010)
Since the NPV of the business at the discount rate of 18 % is negative the business is already not
feasible. Even at a discount rate of 1 %, the NPV is still negative.
The decision Rule for IRR is
 Accept: if IRR is greater than the cost of capital
 Reject: if the IRR is less than the cost of capital
 indifferent: if the IRR is equal to the cost of capital
 If we are comparing two or more projects, the higher the IRR, the better the project is.

4.9.5.3. Benefit Cost Ratio (BCR)

Benefit – cost ratio is also referred to as profitability index. It is an extension of the NPV approach
to compare the profitability of investment alternatives before arriving at investment decision.

𝑃𝑉
𝐵𝐶𝑅 = 𝐼

1,978,536
𝐵𝐶𝑅 = 3,522,575

BCR= 0.561
 When BCR > 1 accept the project
 When BCR < 1 reject the project
 When BCR = 1 be indifferent
Since the BCR is less than 1 we will not accept the project based on this criterion.

37
 4.9.5.4. Payback Period (PBP)

Payback period is defined as the expected number of years required to recover the original
investment. If all factors being held constant, project with shorter payback period is considering
as better project because investor can recover the capital invested in a shorter period of time
(Brigham & Ehrhardt, 2005). If the cash flows of a project are not uniform, the payback period is
calculated by accumulating a series of cash flows until the amount reaches the initial investment.

Year Cash Inflows Cumulative Cash Inflows

0 3,522,575 (3,522,575)

1 580,656 (2,941,919)

2 607,054 (2,334,865)

3 638,203 (1,696,662)

4 674,960 (1,021,702)

5 718,333 (303,369)

Table 28 Payback Period

Based on five-year payback period calculation the project cannot payback its initial investment.

4.9.5.5. Accounting Rate of Return

The accounting rate of return (ARR) formula is helpful in determining the annual percentage rate
of return of a project. ARR is calculated as average annual profit / initial investment. ARR is
commonly used when considering multiple projects, as it provides the expected rate of return from
each project.

Total cash flow before tax =1,498,866

1,498,866
Average cash flow = =299,773 , Depreciation = 411,800
5

= 299,773 – 411,800 / 3,522,575 = -3.18%

A negative rate of return is a loss of the principal invested for a specific period of time.

38
4.9.5.6. Break Even Analysis

Break-even point is the point where the company generates an amount of profit equal to cost of
the production process in the accounting period. Because income and expenses are the same, the
net profit is zero. Break-even analysis is also a way to find out the minimum sales volume so that
a business does not suffer losses, but also not yet made a profit in other words the profit is equal
to zero.

First lets compute the fixed and variable costs

Year 1 Year 2 Year 3 Year 4 Year 5

Variable
Expenses

Total 0 0 0 0 0

Depreciation 411,800 411,800 411,800 411,800 411,800

of farm
equipment

Depreciation 22,200 22,200 22,200 22,200 22,200

of office
equipment

Salary 900,000 900,000 900,000 900,000 900,000

Utility 67,200 67,200 67,200 67,200 67,200

Total 1,401,200 1,401,200 1,401,200 1,401,200 1,401,200

Table 29 Fixed and variable costs

39
 Break-Even analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Sales 1,627,898 1,920,907 2,266,671 2,674,672 3,156,112
Cost of goods (1,418,379) (1,673,687) (1,974,951) (2,330,443) (2,749,922)
Sold
Gross Profit 209,509 247,219 291,719 344,229 406,190
Variable cost - - - - -
Contribution 209,509 247,219 291,719 344,229 406,190
margin
Fixed 1,401,200 1,401,200 1,401,200 1,401,200 1,401,200
expenses
Divide by 0.13 0.13 0.13 0.13 0.13
CM ratio
Break-even 10,778,462 10,778,462 10,778,462 10,778,462 10,778,462
point
Table 30 Break-Even analysis

As we can observe that the break-even point is way above the sales this project is not
financially feasible with these criteria.

40
 5. Conclusion and Recommendation

5.1. Summary

The study proposes a business of Aeroponic farming. And tries to give birds eye view from all
aspects. Initially it discusses what Aeroponic farming is how it can benefit people and what
advantages it has over other farming methods by referring to multiple accredited research journal
articles. Furthermore, it gives an idea of what specific wing of the general problem of food security
as it is trying to address by using the Problem tree, Objective tree, and LFA. Moreover, when we
come to the project preparation section the paper goes further deeply into the proposed business
from all aspects in order to unequivocally know whether the business is feasible or not. The market
study was conducted by a questionnaire that was filled out by everyday users of the product. In
addition, a study of raw materials and equipment and their prices was conducted and also stated.
While also assessing the location of the business, farm layout, and the production program that
will commence if the project gets the go-ahead. Furthermore, the socioeconomic feasibility was
stated as how it can benefit both society and governments in the long run. Finally, the financial
analysis was done rigorously from cash flow projection, initial investments, and various costs to
multiple ways of financial appraisals of a project.

5.2. Conclusion

Up on a thorough review of a study in Addis Ababa of Aeroponic Farming business in Addis

Ababa, Ethiopia while it is feasible socially and economically. This project is not financially
feasible. The results of the financial analysis support the claim that it is not feasible to conduct
such a project in the specified manner as the initial costs and operating costs are too high.

5.3 Recommendations

The main reason for the project to be deemed not financially feasible is that the initial
investment is too high which is down to most of the equipment and raw materials for production
like nutrient solutions are imported from abroad. But if the equipment and raw materials can be
produced with in the country it might have a positive effect on the outcome of such kinds of studies.

41
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44
Appendices

Appendix 1
Rent 300,000
Utilities 33,600
Salary 450,000
Other Supplies 1,475
Raw Materials 317,500
Total 1,102,575

Appendix 2
Item Cost Depreciation
Computer 20,000 4,000
Printer 12,000 2,400
Cash Register 15,000 3,000
Office Chair 12,000 2,400
Table 21,000 4,200
Plastic chair 12,000 2,400
Door Mat 1,000 200
Water filter/ Refrigerator 15,000 3,000
Fan 3,000 600
Total= 22,200

45
Appendix 3
Item Cost Depreciation
Water Pump 100,00 20,000
Water Tanker 160,000 32,000
PVC 600,000 120,000
Shade/Bed 500,000 50,000
Piping 300,000 60,000
Misting Nozzle 250,000 50,000
Plastic Crates 70,000 14,000
Leaf Cutters 10,000 2,000
Generator 250,000 50,000
Fan 40,000 8,000
Bucket 2000 400
Weighing Scale 7,000 1,400
Seed Starter Tray 20,000 4,000
Total= 411,800

Appendix 4 Questionnaire

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