Producing solar dried fruit and vegetables for micro-and smallscale rural enterprise development: Assessing opportunities for a fruit drying business

Summary

The preservation of fruit and vegetables by simple sun drying is practised widely throughout arid and semi-arid areas, for example in Uganda. The use of low cost, solar drying technologies, can significantly improve product quality thereby providing practical opportunities for developing small-scale enterprise, particularly in rural areas, and creating employment for women's groups.

Description

 

Introduction
Experiences in Uganda show that there are circumstances where it is feasible to establish solar drying operations as viable micro enterprises in rural areas. Such operations require dedication, patience and basic skills by all of those involved, and market channels also need to be developed, product quality to be controlled and technical assistance given. An overall and integrated approach is essential if solar drying activities are to be successful in rural development programmes.

There are many reasons why individuals, groups, NGOs, government organisations and aid agencies are interested in micro- and small-scale enterprise development in rural areas. Solar drying fruit and vegetables is one such activity which can, importantly, provide employment for women in rural areas, create sustainable, income-generating opportunities at low cost, produce products to improve nutritional standards in diets and enhance foreign exchange earnings through export.

The technology produces “natural” (untreated) solar dried fruit and vegetables, for which there is increasing demand and market price advantage – also as 'fair-traded products'. The issues highlighted will be applicable to many similar circumstances in other developing countries. Of key importance is reliable access to markets for the products being produced.

Core to the drying operations is a modified version of a local Kawanda solar cabinet dryer. The modified dryer has a drying area of 10 m2 and is capable of drying between approximately 20 and 35 kg of fresh produce (depending upon the commodity and density of loading) over a period of two, three or sometimes four days. Its cost for construction in Uganda in 1996 was around USh 350,000 (US$350) which represents, in relative terms, a significant investment cost for enterprises in rural areas.

This is part of a series of four related technology records dealing with solar drying, and needs to be considered in conjunction with these other records:

  • Assessing opportunities (this record)
  • Dryer construction
  • Practical aspects of processing
  • Business profitability

 

Business opportunities

Should you go into business?
To operate a dryer business successfully and profitably requires dedication, patience and basic business skills. By local standards, dryers require considerable investment and training to operate. The investment decision to start a solar drying business should not be undertaken lightly. It is necessary to understand what is actually involved from the outset. The question often asked by individuals and groups – should I go into business? – can only be answered after careful consideration of the circumstances.

There is a large international market for dried fruit and vegetables, most of which are used as ingredients in food industries. However, this market is supplied by large-scale, low cost industrialised producers. Small-scale solar dryer processors cannot expect to compete with these larger producers and must find other markets.

Dried mangoes, pineapples, bananas and mushrooms are all successfully produced in Uganda and sold as untreated 'natural' products because of the continuing growth in demand for such products, notably also as 'fair-traded products', and the market price advantages they can offer. The premium price gained as a result is crucial to the economic viability of these operations. There are also markets for dried tomatoes, paprika, chilli pepper, papaya and guava, including those that are not grown as wholly natural produce or have received chemical/preservative treatments in processing (such as sulphuring)

Solar drying
Solar drying relies on the sun as its energy source. The method requires the building of a structure, often of very simple construction, to enhance the effect of the sun’s energy to dry fruit and vegetables quickly and cleanly. Although there are many designs of solar dryer which can be used, experimental and technical evaluations carried out in Uganda have shown a modified version of the local Kawanda cabinet dryer to be well suited for local conditions. The dryer contains two layers of trays for drying freshly cut produce and measures 4.4 m long x 1.5 m wide x 0.75 m high overall; it is raised above the ground, typically by 1 m.

The air temperatures generated in the solar dryer can produce dried products with low final moisture contents compared to simple sun drying. This reduces the risk of spoilage during processing and in subsequent storage; the higher air temperatures attainable are also a deterrent to insect and microbial infestation. Using such an enclosed structure affords protection against dust, insects and animals.

The resulting dried foodstuffs can be safely stored for long periods, have good nutritional qualities and have cash value for producers. Dried fruit can be eaten in a number of ways –on its own, as a snack or as an ingredient for food dishes. They have good nutritional qualities; dried mango, for instance, can be a rich source of vitamin A which, if given in children’s diets, can greatly reduce the likelihood of child blindness.

The dried fruit produced can be sold locally, regionally and internationally depending upon quality standards and market channels developed. Dried vegetables can also be produced in the dryer, but the international market value of dried vegetables is considerably less than for fruit. In most instances, the same basic principles apply to a wide range of crops and commodities including, for instance: onions, ginger, citrus, sweet potato, cereals and groundnuts. These can be dried when the dryer would otherwise not be in use for producing dried fruit. Different preparation methods need to be used appropriate to the particular crop and the dryer loaded at different capacities in order to be able to achieve efficient and effective drying; this is often a matter of local experimentation.

Producing solar dried products – involves a number of activities: buying fresh fruit and vegetables, preparing the fruit, drying, packing and selling. Efficient operation at each stage is essential to ensure business success.

Buying fresh fruit and vegetables –  starts with buying or growing fresh produce. These can be bought from the local market or directly from farmers. Whilst most fruit and vegetables can be dried, raw material selected must be of high quality and of the required maturity in all cases. Poor quality or reject fruit should never be used for drying.

Preparing the fruit – Fruit needs to be prepared for drying. This is a time consuming job where high standards of hygiene and cleanliness are essential. The fruit are assessed for quality and ripeness, washed using clean and chlorinated water, peeled, cut into small pieces and placed onto drying trays ready for drying. Tools and working surfaces need to be thoroughly washed and cleaned, before and after use.

In addition, people peeling and cutting fruit need to have clean hands and wear hair nets or scarves. Women are generally quite familiar with the kind of hygiene considerations involved in this work and adapt to it readily.

Drying
Once the drying trays have been loaded with fruit, they are placed in the dryer. The fruit takes two, three or sometimes four days to dry. The actual time required depends upon the weather conditions and the type of fruit being dried; this can be judged with experience. The fruit will not dry properly if there is no sun; it will spoil and be wasted.

Packing
Once dried, the fruit is removed from the dryer, packed into air tight plastic bags and stored until being sold. Badly stored fruit can become infested by insects and moths, and be unsaleable.

Developing a business plan

Introduction
The mail reason for developing a business plan is to ensure the relevant factors have been considered and taken into account in assessing the practical and financial viability of the proposed scheme, before money is committed. This need not be complicated but it requires a systematic approach.

Issues to consider
Operating a solar dryer profitably can be difficult. There are many issues which can affect the success or failure of the business so it is important to consider: price and availability of fruit; potential for solar drying; labour requirements; selling products; transport costs; financing dryer construction and ownership – individual, joint, group.

Price and availability of fruit
The price of good quality fruit needs to be low enough to justify production. Fruit costs account for about 60% of total costs. Therefore, given a final sale price for the dried product and the weight of fresh fruit needed to make one kilogram of dried fruit, an approximate calculation can be carried out to quickly assess whether local fruit prices are sufficiently low to justify solar drying.

The availability of fruit is also an important aspect. To be viable, the dryer usually needs to operate for at least six months of the year. This requires a good network of local farmers who are growing fruit and can guarantee supplies. It is not enough to say “there is plenty of fruit here” – a potential producer should visit a number of local farmers and assess how much each might be able to supply.

Transport costs often the raw produce in the fields is cheap, but the costs of transporting it can be high. Ideally, the dryer should be situated near to the fields to minimise transport costs; these “hidden costs” must be taken into account when calculating the real costs of the produce to the business operation.

Seasonality of supply – all fruit are seasonal, even in tropical climates. It is important to assess in which months fruit will be available. Different fruit air available in different months. The processor would need to decide which fruit to dry in which months. In fact, it may be advantageous to undertake special plantings of particular kinds of produce so they can be harvested at times when other fruit are not normally available. A number of groups in Uganda have set up operations in this way, in particular for mushroom production which is proving successful.

Experience in Uganda has shown that processors rarely take time to make a real assessment of the availability and price of fruit before they start their business. This is a serious error and often results in problems which require considerable time and effort to overcome before the operation starts to become viable.

Questions to consider on the issues of price and availability of fruit

  • What fruit is available most of the year?  
  • How many farmers grow the fruit locally?
  • How far away are the sources of fruit from the dryer?
  • What is the price of that fruit?
  • How much is the cost of delivery?
  • How much do prices vary during the year?
    Are other fruit or vegetables also available that could be dried?
     
  • If the business is to grow crops, does it have the necessary skills or can it access those skills through extension officers or NGOs?
  • Can local farmers be contracted to grow the crop?

 

Potential for solar drying
Solar drying in Uganda using the modified Kawanda cabinet dryer typically requires a minimum during the drying season of average daily temperatures of 28°C or higher, with a relative humidity (percentage saturation) of approximately 35% or less (higher humidity levels can be tolerated if average temperatures are also higher), average daily sunshine of six hours or more and reasonably regular weather patterns which allow the processor to plan production for two to three days in advance.

If temperatures are higher than 28 °C drying will occur more quickly, and the dryer will be more efficient, At temperatures above 40 °C, care must be taken that fruit is not damaged by excessive heat; this requires adapting the solar dryer to allow higher levels of airflow.

The main problem associated with solar drying is that areas having high levels of sunshine tend to be too dry to also have good supplies of fruit. Dry areas may find it difficult to obtain good cheap sources of fruit; wetter areas will lose more fruit through improper or failure of drying. In practice, what is needed is a reasonable balance between plentiful supplies of fruit and good levels of sunshIne. Under less favourable weather conditions, tomatoes and mushrooms tend to be easier to dry than mangoes, pineapples and bananas.

To assess the suitability of solar methods for drying as a business operation, it is helpful therefore to compare the periods during the year when fruit are available at reasonable cost with the normal weather conditions. If, for instance, most fruit is only available during the rainy season, it will be difficult to operate a dryer successfully.

Using relative ratings of good, adequate and poor to describe each situation, the information should be tabulated to build up a picture on a month-by-month basis as shown in Table 1. For each month where good and/or adequate occur together, this should count as a positive [ + ] outcome. If the outcome is positive for a total of six or more months in the year, then solar drying is potentially suitable.

For fruit: good means that large quantities are available at reasonable prices; adequate that limited supplies are available, but still at reasonable prices; poor that supplies are restricted or prices are expensive or both.

For weather conditions: good means that there are at least six hours of full sunshine per day; adequate that most days are sunny; poor that many days are cloudy or rainy or both.

Table 1.

January: (fruit) good (weather) good [ + ]
February: (fruit) good (weather) adequate [ + ]
March: (fruit) good (weather) poor [ - ]
April: (fruit) adequate (weather) good [ + ]
May: (fruit) adequate (weather) adequate [ + ]
June: (fruit) adequate (weather) poor [ - ]
July: (fruit) poor (weather) good [ - ]
August: (fruit) poor (weather) adequate [ - ]
September: (fruit) poor (weather) poor [ - ]
October: (fruit) good (weather) good [ + ]
November: (fruit) adequate (weather) adequate [ + ]
December: (fruit) poor (weather) poor [ - ]

In this example, the number of months with outcome of –+– is 6. It is important to carry out this exercise for your own weather conditions to determine whether solar drying is likely to be viable.

Questions to consider on the issue of the suitability of solar drying

  • When is most fruit available?  
  • Are adequate quantities of fruit available outside the rainy season?
  • What are typical daytime ambient temperatures during most of the year?
  • How humid is it?
  • How often it is overcast?
  • When is the rainy season?
  • Have you completed the weather chart?
  • Is solar drying viable?

 

Labour requirements
Processing operations are labour intensive and involve people in purchasing fruit, preparing it, operating the dryer, packing, and selling the dried fruit. Most labour is required for preparing the fruit (peeling and cutting) and loading the dryer. The dryer can take five or more hours to fill with one person working. or about two hours with three people (including the time for peeling and cutting as well as loading) Demand is highest in the dry season when the dryer is being used most frequently.

Typically: loading the dryer requires two to three people for two to three hours, depending on the type of fruit being dried; unloading the dryer requires one person for about one hour; purchasing fresh fruit, managing the dryer and selling the fruit require more time.

To produce good quality products, the dryer needs to be loaded early in the morning so that the fruit is drying for as long as possible during that day. It is better if two or three people share the work; ideally the same people should operate the dryer to achieve consistent results.

Successful operation of the dryer is a skilful job for which people require training. It is important for all of the people involved in the business to know and understand their role and to receive clear instruction from the person running the business. Once one dryer is operating successfully, businesses can expand by building further dryers of the same type.

Questions to consider on issues of labour

  • Who will operate the dryer?  
  • How will the labour be supervised?
  • Will they be paid; if so, how much?
  • How often will they be available to operate the dryer?
  • Do all the workers have all the necessary skills; if not, can they obtain training?

Selling the product
Many businesses fail because there is no market or buyer for the final product. it is crucial to establish early on who will buy the dried fruit and vegetables and how much they will pay. Many people prefer to buy fresh produce in season and see little need for buying dried products, so local demand may well be limited. However, several businesses in Uganda are selling dried fruit directly into the domestic market; small quantities have been sold to local schools, as sweets for children, or at the local market, generally to the expatriate community. Experience has shown that it takes considerable time and patience to establish local sales.

Dried fruit should be sold each month. Storing for longer periods increases the risk of infestation from insects and moths, and deterioration in quality.

Questions to consider on the issue of selling

  • What products am I intending to sell?  
  • Is the quality good and meets the buyer’s requirements?
  • Is there a local, regional or overseas market for the product?
  • Where can the dried fruit be sold?
  • How can I package dried products for sale?
  • What price will I set for local sales?

Transport costs
Initially, most businesses are likely to market by selling their products to a trading company or buyer in the main city. In Uganda, for “natural” products, this is usually Fruits of the Nile. This involves delivering the products to the company and is an additional cost which can significantly affect the profitability of the business. The further the point of sale is away, the higher the transport costs and the greater the quantity of dried fruit that will have to be taken at any one time to make the dryer operation profitable. For processors a long way from their market, costs can be offset by undertaking other business while travelling. Many dried fruit producers use the opportunity to sell other goods which have high value in Kampala (such as local fresh produce) They may a[so purchase goods which they can then sell at a profit in their home village. In this way, the cost of the trip can he shared across a number of activities. It is also possible to reduce transport costs by sharing. One producer could transport dried fruit to Kampala for other producers in the local area. Whilst this increases the volume of fruit taken at any one time, it means transport costs are shared between several producers. However, this does require a degree of trust between different producers and this may not always be forthcoming.

Questions to consider on the issue of transport costs

  • How far is it to the buyer?  
  • What is the transport cost?
  • Can transport costs be shared with other dryer producers?
  • Are there other products which can be sold at the same time?
  • Are there any products that can be brought back which can be sold profitably in the local village?

Financing a dryer operation
Often the first question asked by a potential producer is - how much does a drier cost? It is not very easy to answer. Most of the costs of the dryer are made up locally from the wood and labour costs in building it. These costs are highly variable from location to location. Imported materials for a dryer, the solar plastic and nylon mesh, cost about US$ 50 (USh 50,000) In Uganda, the cost or building, labour and timber, is around USh 300,000 (US$ 300) (in 1995) but this figure varies in different locations and will be different in other countries. It is also important to appreciate that the costs of setting up the business do not end with the purchase of the dryer. Finance is also specifically required to cover capital costs, working capital and reserve funds.

Capital costs
The costs for constructing or purchasing a dryer are the most significant investment for the business. Funds can be raised in a number of ways. Dryers presently operating in Uganda have been paid for from savings of individuals, from loans from family members (informal loans), and from loans from NGOs or other organisations (formal loans) If the dryer is purchased from money which has been borrowed in some way, then the repayment and interest charges which are incurred both need to be taken into full account when assessing the financial viability of the proposed operation. The capital cost should include the amounts for the dryer, for associated equipment such as knives and tables, and for training.

Working capital
The need for initial working capital is often over-looked. It is required for purchasing raw fruit, buying consumable items (such as bleach and packaging material), maintenance and repair, transporting products to the buyer and paying wages if people are to be employed in processing operations. If fruit is going to be sold every two to four weeks, then funds must be available to cover expenses for at least that period. After that, the moneys needed for operating the dryer can be taken from the revenue gained from sales.

Reserve funds
Some reserve funds should be available as a “safety net” to cover unforeseen circumstances such as fruit losses, poor weather, damage to the dryer or for problems which may arise during the initial learning stages. It is important that small mistakes made early on do not leave the processors so short of money that they cannot continue to run the business. When starting up the dryer after a dormant period, funds will be needed again to buy fresh fruit. It is sometimes the case that processors have run out of money; some funds should be set aside from previous profits and placed in a bank account where it can earn interest and be readily available.

Questions to consider on the issue of finance

  • How is the dryer to be paid for?  
  • If money is to be borrowed, who is it to be borrowed from?
  • How do they need to be repaid and by when?
  • What will be the repayment and interest costs over this period?
  • What happens if repayments are not made?
  • Have agreed arrangements regarding loans (whether formal or informal) been written down?

Ownership - individual, joint, group
The dryer operation may be established and owned by individuals, by joint partnerships or by groups. The different forms of ownership require different consideration. No particular form of ownership is necessarily the best, but experience in Uganda shows that ownership by individuals and couples, rather than groups, have resulted in fewer difficulties.

Some dryers have been purchased by groups where each member pays a part of the purchase price of the dryer. Once the dryer is purchased, the group generally share the work and profits from drying. Other dryers have been set up by couples: husband and wife, sister and sister, or sister and brother teams.

Individual ownership
The main advantage of individual ownership is that all decisions can be made by the owner. It is the owner’s decision when to purchase fruit, whether to employ people to operate the dryer, how to spend profits, when to work and so forth. Such owners also tend to work harder to ensure that the business succeeds because it is their money and labour that have built the business. Whilst the rewards are high, there are disadvantages in that the person running the dryer is on their own and there is no one to fall back on or to assist in times of difficulty. In some circumstances, dryers have been purchased by individuals who have then directly employed other people to operate them.

Joint ownership
Joint ownership may involve husband and wife, or brother and sister. Such arrangements offer advantages in that women tend to have natural skills for operating and managing businesses together with a better understanding of hygiene requirements; complementary to these, men tend to be better able to build dryers, to negotiate more readily with other farmers, to have better access to informal financial systems and have transport (such as bicycles) for deliveries.

From instances in Uganda, it is notable that women starting off businesses find that husbands only tend to become involved once the business has become profitable; they may then become very interested and may even take-over the business. However, well motivated couples are very successful, particularly if they can complement each other as a team.

Group ownership
Operating a dryer in a group has a number of apparent advantages. It is often the case that raising finance for a group dryer is usually easier, NGOs tend to favour activities which encourage co-operation within communities and expanding the business and purchasing additional dryers are simpler.

Expansion can lead to members of the group having their own dryer which they operate, but share other costs such as transport of fruit to Kampala and for renting a secure space in which to store produce. Groups also have the advantage that members may be contracted to grow crops. Some group members may also be farmers who are willing to produce fruit for a good price in return for a guaranteed market for their produce.

Whilst such advantages may be evident, the conflicts and problems which frequently emerge through group ownership are not properly recognised. It seems that often individual members have different ideas about running the dryer, there is conflict over the relative effort put in by individuals, members who feel they have worked hardest believe they should receive a greater share of the profits, there is disagreement on how to spend or share profits and opinions differ on ways to invest in or to expand the business.

There are many instances where such differences have led to unresolved conflict with thc result that the dryer is neglected by the group and the business has collapsed. For group ownership schemes to be successful, key questions must be addressed and agreed through discussion amongst the prospective members of the group before embarking on the business.

The group should agree on a 10-point plan on how to: conduct their meetings, manage the business, pay for the dryer, assign tasks, operate the dryer, use revenue, distribute profits, expand the business, settle grievances and terminate the business.

Group ownership requires greater administrative support and effort to work successfully. The value of employing an experienced manager to run the business is often unrecognised by groups. The manager, who could be employed partly on a commission basis, would take day-to-day responsibility for business decisions on behalf of the group - for purchase of fruit. overseeing dryer operation, organising transport and so forth - as well as being responsible for book-keeping and maintaining quality standards. However, the group would need to routinely monitor the performance of the manager to guard against irregularities.

Questions to consider on issues of ownership

For individual or joint ownership

  • How can the dryer be paid for?  
  • Who will own and operate it?
  • What are the advantages and disadvantages of individual ownership?
  • What are the advantages and disadvantages of joint ownership?

For group ownership

  • What are the advantages and disadvantages of group ownership?  
  • Have the group agreed on the 10-point plan?
  • Should a manager be employed?

Business plan
From the knowledge gained about the issues raised, it should be possible to conclude the kind of solar drying business which is most appropriate under the circumstances. It is only at this stage can the potential financial viability of the business plan be assessed. The following questions should now have been answered: are there markets for the dried products; is fruit readily available for most of the year; are the weather conditions acceptable; is solar drying feasible; can finance be raised to establish the business and construct the dryer; who will own and operate the dryer(s) and do the potential processors have all the food handling and business skills required (if not, can they obtain training?)

Examining the financial viability

Introduction
It is essential to assess whether the business scheme proposed is likely to be profitable. The main costs (expenditure) and revenue (income) involved in the business need to be examined. The clearest way to understand the analysis which needs to be carried out is to follow through the simplified worked examples given below. Such examples can only be illustrative, but once the principles are understood, they will enable reasonable estimates to be made of the likely profitability of potential businesses.

Costs are presented per operation of the dryer with the financial appraisal conducted over a twelve month period. The operational assumptions used in the analysis for the quantities of fruit required, labour times, drying times and the weight of dried fruit produced are based on data obtained directly from groups currently operating in Uganda. The data and prices were correct in 1995. But prices will have changed since then, so all figures should be used simply as a guide. In other countries, costs will be different and will need to be determined accordingly.

To carry out the analysis, it is necessary to consider variable costs, fixed costs, revenue (i.e. income) and net revenue (i.e. potential profitability)

Variable costs
Variable costs are those that change as the level of output (ie dried fruit produced) changes. The important types of variable costs to consider are cost of fruit and cost of transport.

Fixed costs
Fixed costs are those that do not change as the level of output (ie dried fruit produced) changes; they are the same whether the dryer produces 1 kg or 500 kg or product per year. The important fixed cost factors which need to be considered are cost for repayment of capital and interest charges, cost of depreciation (if there is no loan to repay) and cost for repairs and maintenance.

If no loan is taken out (as example A below), then an allowance for depreciation must be included as the money used for establishing the dryer business could have been used for some other kind of investment. However, if a loan is taken out (as example B) this is not the case so no allowance for depreciation is included.

Business plan costs (example A)
For this simplified example, the business is assumed to buy the dryer outright without borrowing money (ie there is no loan and therefore no costs involved for repayment of capital and interest charges), dry one fruit only (pineapple in the example), operate for 8 months per year (32 weeks), dry fruit two times per week, sell dried fruit in Kampala two times per month, have labour provided by the family and not normally paid for and have all profits return to the family.

The various costs involved are considered as follows:

Variable costs

(a) For fruit:
Typical price for one fresh pineapple [a] USh 150
Typical number of pieces to till dryer [b] 20 pieces
Cost to fill dryer once [c = a x b] USh 3,000

Cost of fresh fruit per year
(assuming two operations per week for 8 months, ie a total of 32 weeks per year) [d = c x 2 x 32] USh 192,000

(b) For transport:
Typical cost of one return trip to Kampala [e] USh 3,000

Cost per year (assuming two visits per month 8 months per year) [f = e x 2 x 8] USh 48,000

TOTAL VARIABLE COSTS = [d] + [f] = 192,000 + 48,000 = USh 240,000

Fixed costs

(a) Depreciation:
The dryer is the major investment of the business. The inclusion of a depreciation cost allows for a reduction of the value of the solar dryer over time. Many businesses using their own money do not include this cost when calculating profitability with the result that profits are favourably over-estimated.

Depreciation allowances involve selling aside part of the cost of a new dryer every year and putting this money into a savings account. In this way, by the time the old dryer is unusable there is sufficient money saved to buy a new dryer or to re-invest the money into another business.

Assuming a dryer lifetime of five years and an initial cost of the dryer of USh 350,000, a simple depreciation allowance can be calculated (at current costs) as follows:

Typical capital cost of solar dryer [g] USh 350,000
Expected lifetime of dryer [h] 5 years
Depreciation per year [i = g/h] USh 70,000

(In a full analysis, allowances would also be made for inflation. More complex depreciation allowances can also be calculated taking into account interest on the value of items held as capital for the business)

(b) Repairs and maintenance:
The dryer will require periodic repair and maintenance (R & M) This cost is usually taken at 5% per year of the capital cost of the dryer, so that:

Typical capital cost of dryer [g] USh 350,000
Percentage of dryer cost for R & M [j] 5%
R & M per year [k = g x (j/100)] USh 17,500

TOTAL FIXED COSTS = [i] + [k] = 70,000 + 17,500 = USh 87,500

Revenue (example A)
Revenue (income) is obtained from selling the dried fruit. Income per batch of product should be:

Typical price received for dried fruit/kg [l] USh 2,700
Typical quantity of dried pineapple produced
per drying operation [m] 2.6 kg
Income generated per operation [n = l x m] USh 7,020

Revenue per annum should be:

Revenue per year (assuming two operations per week for 8 months ie 32 weeks per year) [o = n x 2 x 32] USh 449,280

TOTAL REVENUE = [o] = USh 449,280

Assessing net revenue (example A)
To assess the potential profitability of the operation, costs are taken away from revenue to calculate the net revenue which represents money which can be returned to the business for labour, capital and profits.

Potential profitability per year of operating a solar dryer (example A)

Costs

Variable costs total [p = d + f] USh 240,000
Fixed costs total [q = i + k] USh 87,500
Total costs [r = p + q] USh 327,500

Revenue

Income from dried fruit [o] USh 449,280

Net revenue [s = o - r] USh 121,780

NET REVENUE = [s] = USh 121,780

In this example given, the dryer generates a net revenue of USh 121,780 per year. This assumes it is being operated reasonably efficiently, that there are no capital or interest payments to be made to buy the dryer and no direct charges for labour. If finance is borrowed to buy the dryer, then these payments must be taken into account as shown in example B.

Running a single dryer is not a full time job. For each operation (raw material purchase, fruit preparation, loading, unloading and packing), it requires around seven hours, although much depends upon the availability of the unit and the processing skills developed. Typically, the time spent is equivalent to about one day of work. On this basis:

INCOME RETURN PER WORKING DAY = USh 1,903

This represents the net annual revenue divided by the total number of days worked per year. It should be compared with other local business or work opportunities in the area to decide whether it is favourable or not.

Business plan costs (example B)
In this example, money is borrowed to establish the business so that additional costs are incurred. The loan is intended to cover only the capital costs as this is often the case. In practice, working capital and reserve funds are often expected to he put in by the owner to demonstrate their commitment to the business. Assume the amount to cover capital purchase of the dryer is USh 350,000 and a loan is arranged through a local bank with interest charged at a rate equivalent to 18% per year over a period of five years. Interest payments are made at the end of each year and the loan is paid off in five equal parts.

For this example, the variable costs will be the same as example A. However, the fixed costs now need to include amounts for paying the interest each year, plus an amount each year for repaying the loan. No allowance is made for depreciation as the money is being borrowed (and therefore not available for investing in some other business opportunity as in example A) However, an allowance for repair and maintenance still needs to be included.

Capital repayments will be (assuming capital borrowed is USh 350,000 and repayment over 5 years in equal installments)
Cost per year for repayment of capital [t = g / 5] USh 70,000

Interest payments will be:

Capital outstanding at end of year 1 = USh 350,000
interest payable year 1 = 350,000 x 18% = USh 63,000

Capital outstanding at beginning of year 2 = 350,000 - (350,000 / 5)
interest payable year 2 = 280,000 x 18% = USh 50,400

Capital outstanding at beginning of year 3 = 280,000 - (350,000 / 5)
interest payable year 3 = 210,000 x 18% = USh 37,800

Capital outstanding at beginning of year 4 = 210,000 - (350000 / 5)
interest payable year 4 = 140,000 x 18% = USh 25,200

Capital outstanding at beginning of year 5 = 140,000 - (350,000 / 5)
interest payable year 5 = 70,000 x l8% = USh 12,600

Capital outstanding at end of year 5 = 70,000 - (350,000 / 5) = nil

Average interest paid per year = (year 1 + year 2 + year 3 + year 4 + year 5) / 5 = 189,000 / 5
Average interest per year [u] = USh 37,800

Capital plus interest repayment = [t] + [u] = 70,000 + 37,800 = USh 107,800
R & M (as before) = [k] = USh 17,500

TOTAL FIXED COSTS = 107,800 + 17,500 = USh 125,300.

The revenue gained will he the same as example A and the potential net revenue is determined in the same way as above.

Potential profitability per year of operating a solar dryer (example B)

Costs

Variable costs total [p = d + f] USh 240,000
Fixed costs total [q = k + t + u] USh 125,300
Total costs [r = p + q] USh 365,300

Revenue

Income from dried fruit [o] USh 449,280

Net revenue [s = o – r] USh 83,980

NET REVENUE = [s] = USh 83,980.

In this example, the dryer generates a net revenue of USh 83,980 per year compared with USh 121,780 per year in example A, but in this case, money has been borrowed to purchase the dryer. This gives an:

INCOME RETURN PER WORKING DAY = USh 1,312.

Outcome
The examples given illustrate the key factors involved in assessing the potential viability of operating a solar dryer business. They have been based on the drying of pineapple. Other commodities have different costs associated with them and produce different quantities of dried product, and consequently give different levels of income return.

The advantage of not having to borrow money can be clearly seen by comparing the two (simplified) examples. For any loan, its important to obtain minimum interest charges and to understand the terms of the loan to be provided, no matter who the lender.

Key points to consider if taking out a loan:

  • What is the true rate of interest?  
  • Is the rate fixed for the period of the loan?
  • What are the amounts and times when payments need to be made?
  • What happens if payments cannot be made on time?
  • What happens if the borrower wants to repay early or to extend
  • the loan period?
  • Will the lender give a “grace period” of 2-3 months before the borrower
  • has to start repaying the loan?
  • What if the business fails?
  • What happens if the borrower become ill or dies?
  • Are the main conditions written down and understood?

 

The investment decision

Conclusion
This description has highlighted some of the issues which should be taken into account when thinking about the setting up of a solar drying business. Once the net revenue and the return per day have been calculated for a specific business situation, the decision to invest depends on whether the financial return is seen to be sufficiently high compared with other investment opportunities.

If the practical considerations can be met and the net revenue is perceived as acceptable, then there is no reason why a solar drying operation should not become a good business opportunity. On occasions, it will become evident that it is inappropriate, in which case people must be firmly discouraged from starting up, otherwise they will risk being in debt.

Careful assessment of these factors from the beginning will help foster realistic expectations about the business, about the amount of work and effort involved and the expected financial returns from operating a dryer.

Advice and training
In developing viable enterprises of this nature, an integrated and coherent approach is crucial and account needs to be taken of all aspects of the production system from farmer to consumer. Access to advice and training is a key factor in achieving this.

Markets for products
Without markets for the products, no business can succeed. Establishing market channels in any country for any product is far from easy. For dried fruit and vegetables, it will be more difficult because of the limited demand for such products. Every opportunity therefore needs to be taken to explore market outlets and every assistance sought from local traders, trade associations, NGOs, church groups, government departments, export promoters! overseas traders, aid agencies and so forth. Every situation will he different, but importantly much will depend upon the efforts of individuals in promoting their products.

Before making an investment decision, have other opportunities been considered? For instance, it may be appropriate to produce other products such as dried onions, garlic, herbs, or perhaps low-sugared or honey dipped fruit, crystalised fruit. fruit leathers, fruit bars, muesli, fruit and nut mixtures, deep-fried fruit products, jams and so forth. These products may be easier to sell.

So should I advise going into business?
Yes, if the business plan shows the enterprise to be viable, there are markets for the products and, after careful consideration, the processor feels it is the right kind of business to establish. But first recheck the basic assumptions made in assessing the opportunity, then refer to the other technologies in this series.

Possible risks
The expected levels of quality requested from exporters, including the fair trade market, has generally increased since 1996. The investor must check if the quality for the market could be reach by solar drying and what percentage of its production would reach it. The selling prices on the local market are often 2 to 6 times lower than the export price.

References and Further reading
BREAG, G., MARDER, R., MARTER, A., and SWETMAN, T. (undated) Workshop on small-scale food processing contributing to food security – persimmon drying in Pakistan. Natural Resources Institute, University of Greenwich, UK. 3 pp.

BRETT, A., COX, D.R.S., TRIM, D.S., SIMMONS, R, and ANSTEE, G. (1996) Producing solar dried fruit and vegetables for micro- and small-scale rural enterprise development. Handbook 1: Assessing Opportunities. Natural Resources Institute, University of Greenwich, UK. 34 pp.

BRETT, A., COX, D.R.S., TRIM, D.S., SIMMONS, R., and ANSTEE, G. (1996) Producing solar dried fruit and vegetables for micro- and small-scale rural enterprise development. Handbook 2: Dryer Construction. Natural Resources Institute, University of Greenwich, UK. 30 pp.

BRETT, A., COX, D.R.S., TRIM, D.S., SIMMONS, R., and ANSTEE, G. (1996) Producing solar dried fruit and vegetables for micro- and small-scale rural enterprise development. Handbook 3: Practical Aspects of Processing. Natural Resources Institute, University of Greenwich, UK. 30 pp.

BRETT, A., COX, D.R.S., TRIM, D.S., SIMMONS, R. and ANSTEE, G. (1996) Producing solar dried fruit and vegetables for micro- and small-scale rural enterprise development. Handbook 4: Business Profitability. Natural Resources Institute, University of Greenwich, UK. 30 pp.

STEP (2005) An information guide to help build successful food businesses in Africa. STEP Systems Ltd UK. http://www.stepsystems.co.uk

THUILLIER, F. (1999) Setting up has food Drying Business, with step-by-step guide. Edition GERES. ISBN 1-85339-498-X; 73 pp. (see http://geres.free.fr)

Contact details for DFID research project teams
To view table, click here.

Evidence of validation
To view table, click here

e-Resources
NR INTERNATIONAL/TROPICAL WHOLEFOODS (2003) Breaking into mainstream food markets in the UK. http://www.tropicalwholefoods.com
Information on solar driers is also available at: Centre Ecologique Albert Schweitzer Direction Internationale. http://www.ceas-ong.net/ceas1.html

Health and safety
The researchers, their institutions or this website cannot be held responsible for any damage resulting from the use of the materials or methods described here. The application or use of treatments, processes and technologies is the sole responsibility of the user.

DFID disclaimer
This technology is an output from the Renewable Natural Resources Research strategy funded by the UK Department for International Development (DFID), for the benefit of developing countries. The views expressed are not necessarily those of DFID.

Acknowledgements
Technology selected and record compiled from original project documentation by Natural Resources International Ltd, with funding from DFID’s Central Research Department (Communications). Implementing and advising on this process were: Karen Wilkin and Tina Rowland (joint project leaders), Andy Frost, Vino Graffham, Jody Sunley, Liz McVeigh, RNRRS programme staff, FAO’s Research and Technology Development Service, FAO’s LEAD programme, DFID’s Central Research Department, Ken Campbell, Graham Farrell (Plant Clinic), Simon Eden-Green, Peter Golob, John Esser, Liz Betser (360º Responsibility). Validation domain reviewed by the Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD), Simon Eden-Green and Peter Golob. Uploading by Random X Solutions Ltd. For more information, please contact Karen Wilkin, NR International Ltd or Tina Rowland, Random X Solutions Ltd.

 

 

Further reading

BREAG, G., MARDER, R., MARTER, A., and SWETMAN, T. (undated) Workshop on small-scale food processing contributing to food security ¿ persimmon drying in Pakistan. Natural Resources Institute, University of Greenwich, UK. 3 pp.

Countries

Uganda

Created date

Wed, 28/06/2006 - 18:43

Attached files

Source

UK Department For International Development (DFID)

The Department for International Development (DFID) of the United Kingdom of Britain leads the UK’s work to end extreme poverty. 

DFID works to end the need for aid by creating jobs, to unlock the potential of girls and women and to help to save lives when humanitarian emergencies hit.

DFID also works for helping to prevent climate change and encouraging adaptation and low-carbon growth in developing countries.