Establishment of Rice Processing System I

Republic of the Philippines

Region _____

Province of ____

MUNICIPALITY OF ________

ESTABLISHMENT OF A RICE PROCESSING SYSTEM I FOR THE MUNICIPALITY OF _________

(Feasibility Study)

INTRODUCTION

A vital role in achieving the objectives of the RCEF Program Mechanization Component is the establishment and upgrading of appropriate Rice Processing Systems (RPS). Its sub-program aims to meet the government’s objectives in reducing postharvest losses, improving rice quality, and promoting value-adding, thereby addressing the broader goals of increasing farmers’ income, curbing inflation, and achieving rice security. Drying and milling incur the highest postharvest losses at 5.86% and 5.52%, respectively according to PHilMech and PHilRice study. These two operations contribute about 70 percent of the total losses due to inefficient and inadequate dryers and rice mill facilities. With the RPS, comprising mechanical dryers and a rice mill equipped with state-of-the-art components, both physical and qualitative losses will be reduced thereby improving the quantity and quality of milled rice output. The RPS will also serve as an alternative market for rice farmers in obtaining better prices for their produce. In addition, the introduction of high-quality milled rice at affordable prices benefits consumers by and large. This is in consonance with the DA’s direction in lowering the price of the major staple.

The Municipality of ________ is a potential beneficiary of the RPS I package. The proposed business model is for the RPS to procure fresh and dried palay from the rice farmers at a higher price and perform drying activity with the use of mechanical dryers before processing utilizing a state-of-the-art rice mill. Quality rice is packed and sold to the market at more competitive prices.

Being one of the rice granaries of ________, the municipality is endowed with vast rice areas with a total of 5,120 hectares. With that, a total of 4,000 farmers have been engaging in rice production since Filipinos are basically rice-eaters. Along with this opportunity, farmers nowadays faced various problems in the cultivation of their crops, particularly the increasing price of farm inputs coupled with a low-income during harvest season due to the presence of opportunist strikers which dictates the selling price of harvested rice grains and impose other excessive charges. With the identified problem, some farmers are now slowly converting their prime agricultural lands to other uses, since it will be more profitable in their part, which threatens the food sufficiency of the municipality.

This study looks into the feasibility of establishing Rice Processing System for Municipality of ________. This will serve as basis in the preparation of the business plan.

I. OBJECTIVES

1. To determine the technical, organizational and management, market and financial feasibility of establishing a rice processing system for LGUs; and

2. Provide recommendations to enhance the feasibility of the RPS business.

II. TECHNICAL ASPECT

a. Project Description

The Municipality of ________, being one of the rice granaries in ________ has 4,000 local farmers with an area of 5,120 planted hectares. With the aim to help the farmers in increasing their income, the Local Government Unit applied for RPS under the RCEF Mechanization Program to acquire state-of-the-art machinery for agricultural production. The RPS includes two units of 6 tons/batch of recirculating dryers and 1.5 tons/hr. of multi-pass rice mill which allows the municipality to process quality milled rice and enable the business to penetrate a bigger market with strict requirement in terms of quality.

The municipality of ________ will be a recipient of RPS I will be composed of hi-tech components which includes mist polisher, length grader and color sorter (Figure 1).

Figure 1. The basic components and process flow of state-of-the-art rice milling facilities

The system will initially be managed by the Municipal Economic Enterprise and Development Office (MEEDO) as one of the income-generating sources of the LGU. With the help of the Technical Working Group (composed of the SB Committee on Appropriation, SB Committee on Livelihood and Cooperative Development, SB Committee on Agriculture, Municipal Treasurer’s Office, Municipal Planning and Development Office, Municipal Budget Office, Municipal Agriculture Office and the Municipal Accounting Office).

For the preparatory stage of the operation, the employees under the MEEDO together with some detailed regular and job order employees will operate the system until it can stand alone such that the economic enterprise can generate its own employees through its income generation.

b. Project Location/Site

The project will be situated in ________. The RPS is expected to cover the harvest of the local produced fresh palay of the local farmers and the nearby rice producing municipalities in the province (Figure 2). The warehouse is strategically located within the Agricultural Production Zone of the municipality, about 5.63 kilometers away from the Poblacion, ________ (Figure 3).

Figure 2. Map showing the location of the project.

Figure 3. Project Site and Existing General Zoning Map, 2015-2025.

c. Land, building and other improvements

The RPS plant will be constructed within the 10-hectare LGU-owned lot at barangay ________ of which 6-hectare is allocated for agricultural part. An area of about 600 meters will be allocated for RPS beside the existing Municipal Corn Processing Building. This will then serve as the Municipal Integrated Agricultural Processing Facility of ________.

Phase I of the RPS Warehouse is a 240 square meter building worth Php 2,000,000.00 funded under the devolved fund of the Municipal Agriculture Office, wherein the Mechanical Dryer and the Rice Mill will be housed. The said project has already undergone bidding last December 2022.

By 2023, Phase II of the building is already funded still under the devolved fund of the Agriculture Office worth Php 2,300,000.00. Other improvements like the construction of a 2,000 square meter solar drier, extension of RPS warehouse project for another 360 square meters which will house the two units of mechanical dryers and procurement of other necessary machineries will be expected for the upcoming budget year.

Figure 4. Site Development Plan of the RPS I

Figure 5. Schematic diagram of rice processing operation

Facility requirement

The investment items are listed in Table 1. The major facilities are one unit rice mill with complete components and standby generator set, two units of 6-tonner recirculating dryers, land to put up the warehouse and multipurpose drying pavement, one hauling/delivery truck, three units 75 KVA transformers, two units weighing scale, two units’ moisture meters and office equipment/furniture/fixtures.

Table 1 shows the technical specifications of Rice Processing System I with an input capacity of 1.5 ton/hr., hulling coefficient of 79% minimum, milling recovery index of 0.95 minimum, and 0.90 minimum percent head rice index. The recirculating dryer has a holding capacity of 6 tons of wet palay at 24% moisture content minimum, drying efficiency of 75% minimum, direct-fired petroleum-based fuel, and indirect-fired biomass fuel (Table 1).

Table 1. List of Machinery and equipment

Facilities	Specifications
Land	60,000 sq.m.
Warehouse and perimeter fence	600 sq.m.
Rice Mill with components	1.5 t/ha
Mechanical Dryer (2)	6-tonner
Multipurpose Drying pavement	240 cav.
Hauling/Delivery truck (One 6-wheeler)	250 cav.
Transformer (3)	3 x 75 KVA
Weighing scale (2)	1,000 kg.
Moisture meter (2)
Office equipment, furnitures and fixtures	set

d. Process flow of RPS operation

The RPS operation process flow is illustrated below. Procurement of palay, both fresh/wet and dried will be picked up at the farm or delivered by the farmers to the RPS facility for small-volume palay disposal. Fresh palay at about 24% moisture content will be dried to 14% moisture content using the mechanical dryer or sun drying method whenever possible. The dried grains will be temporarily stored in bags or milled immediately after tempering. After milling, packed milled rice will be distributed to the different markets.

Figure 6. Process flow RPS business operation

III. Target volume for processing

The target volume was estimated based on the rated capacities of milling and drying facilities and the number of days of operation. With the rice mill’s output capacity of 975 kg per hr and operating time of 1,200 hours per year (8 hr./day x 150 days per year), the business requires 31,800 bags fresh palay to produce 23,400 bags (50-kg) of milled rice. About 78% of palay procurement is in fresh form based on the capacity of the mechanical dryer and drying pavement. The remaining 22% will be procured dried palay.

Table 2. Target volume for processing, RPS I

Facility	Capacity	Hours of operation/ year	Volume, in bags @ 50-kg
Facility	Capacity	Hours of operation/ year	Fresh palay	Dried palay	Milled Rice
Mechanical dryer (2 units)	120 bags/batch	80 batches x 2 units	19,200	(27,984)
MPDP (2000 sq.m)	280 bags/batch	45 batches	12,600
Fresh palay procurement			31,800
Dried palay procurement				8,016
Rice mill	1,500 kg/hr. (input)	1,200 hours		36,000
Rice mill	975 kg/hr. (output)	1,200 hours			23,400

IV. MARKET ASPECT

a. Existing rice marketing system (Cite a local rice value chain or marketing study if available)

The municipality of ________ has been one of the major suppliers of rice in the province of ________. There are about 11 private rice millers in ________, with a combined capacity of 65.8 metric tons. Aside from the millers based in the municipality, ambulant buyers from ________, ________, and ________ are also active in the area, competing with the local supply of palay for their rice processing and trading operations. These traders often control palay prices just to have an assured procurement or provide capital to farmers through their financing agents.

The most common grades of rice available in the market are labelled as 160 and 222 rice. Prices range from Php 40.00/kg to Php 42.00/kg for the Premium grade rice.

Also, there are about 9 private operators of mechanical drier in the municipality with a combined capacity of 120.2 tons.

b. Target market

With the prevalence of private millers in the area, the business will primarily target wholesalers and retailers in the municipality, allocating 70% of the total volume processed. The remaining thirty percent of milled rice will be sold within the province. Through the joint forces of the office of the municipal government through Mayor’s Office, Municipal Tourism, MEEDO, Municipal Treasurer’s Office and the Municipal Agriculture’s Office, the management will cooperate with big private millers/traders in the municipality and in Salug Valley Area in implementing a market penetration strategy in the District 1 and nearby market centers in the province. Moreover, the enterprise will have an agreement with government offices such as MSWD, MNAO and DEP ED for their supplemental feeding, BJMP and PNP on their rice allowance, ________ Community Credit Cooperative for their credit program on employees’ rice consumption, ________ Municipal Hospital- as part of their food supplies, canteen/cafeteria concessionaires, local market, and neighboring municipalities.

c. Product/service description

The RPS will primarily sell premium quality milled rice and by-products such as bran and brewer. In addition, custom milling and drying will be offered during the lean months of operation to maximize the use of facilities.

d. Pricing scheme

The business will adopt penetration pricing strategy by setting more competitive price than the prevailing market price. This is possible with the socialized pricing scheme adopted by the RCEF Mechanization program since the milling and drying facilities are acquired through government grants. Pricing will be adjusted after determining the breakeven price plus the desired profit margin. This is based on the volume processed, operating costs and the current price offered by competitors. Pricing also vary depending on the grade, type of buyer (wholesaler, retailer and direct consumer) and distance of market. The average selling price is shown in Table 3 although prices could fluctuate from time to time as affected by market forces. The project will ensure that farmer beneficiaries will receive a share of the profit/surplus by getting higher price for their produce and/or through patronage refund. On the other hand, the consumers should benefit by having more affordable quality rice.

Table 3. Selling price of milled rice and rice by-products

Product	Average Selling Price, Php
Product	Per kg	Per 25-kg	Per 50-kg
Milled rice
Premium grade	41.00	1,025.00	2,050.00
Medium grade	38.00	950.00	1,900.00
Straight milled	36.00	900.00	1,800.00
By-products
Bran	18.00		720.00*
Brewer	20.00		1,000.00

*40 kg

e. Product promotion

The RPS will employ sales promotion to market its product through trade incentives particularly by offering price discounts. Aside from price discounts, we will have a suki card for repeat buyers wherein they are entitled to receive points for every batch of milled rice they buy from us. Then on pricing strategy, if the selling price of fresh palay in the market is P15.00 per kilo, we will be offering P16.00 per kilo to buy the farmer’s harvest and then if the buying of milled rice in the market is P42 per kilo, we will be offering a selling price range of P41 per kilo. So, the strategy is we will add up P1.00 per kilo on the buying of fresh palay and we will deduct P1.00 per kilo on the prevailing selling price on the market.

f. Distribution

The enterprise will deliver milled rice and by-products in the targeted market. There will be also a display of milled rice and its by-products at the Negosyo Center which is located at Municipal Public Market.

g. Packaging and Branding

The MEEDO of Local Government Unit of ________ will be providing the design of the packaging for milled rice. The RPS will use the brand name “________ PREMIUM RICE”.

Figure 7. Rice packaging

ORGANIZATIONAL AND MANAGEMENT ASPECT

a. Basic profile of the beneficiary (For LGU recipients, describe the municipal profile)

GEOGRAPHICAL LOCATION

________

LAND AREA

________

TOPOGRAPHY

________

• AGRICULTURE

________

a. RPS operation management structure

The management organizational structure is illustrated in Figure 8. Since the RPS is operated by the LGU through MEEDO, the Municipal Mayor shall serve as the top-level management of the organization followed by the support of the Policy Governing Board composed of MTO, MPDO, Accounting Office, MBO, SB Committee on Appropriation, Livelihood & Cooperative Development and Agriculture and the Municipal Agriculture’s Office. The regular personnel are composed of Facility Supervisor, Marketing/Quality Control Officer/Classifier, Warehouseman, Cashier, Bookkeeper, Accountant, Rice Mill Operator, Mechanical Dryer Operator and Procurement/Delivery Truck Driver. Laborers will be hired as need arises.

Figure 8. Organizational structure, RPS1

Job Description and Personnel Compensation

Table 4. Job description and responsibilities of RPS I personnel

POSITION	RESPONSIBILITIES
Facility Manager	1. Effectively manage and develop MRPS 11 Operations 2. Ensure that the center earns profit 3. Supervise and evaluates performance of all staff 4. Conduct marketing linkages with stakeholders 5. Attend meetings, seminars and conferences with the LCE and other agencies
ADMIN AND FINANCE SECTION
Accountant	1. Responsible for the supervision of the cashier and the bookkeeper 2. Responsible for the administration of Finance and Admin. Division 3. Responsible for the accounting records of daily transactions, monthly reports and submission of Financial Reports
Bookkeeper	1. Responsible in recording the daily transactions of the business.
Cashier	1. Responsible for receiving and disbursing cash in close coordination with the Facility Manager.
OPERATIONS SECTION
Classifier	1. Conduct moisture content testing of palay 2. Recommend standard for palay classification 3. Prepare Purchase Slip 4. Conduct negotiation on price of palay and tare 5. Keeps record
Laborer	1. Assist the marketing officer and classifier
Warehouse Controller	1. Supervise the work of the warehouseman. 2. Responsible for the control of inventory inside the warehouse 3. Able to project the stocks to be procured
Warehouseman	1. Manage the day-to-day operation of the warehouse 2. Keeps records of in and out transactions in the warehouse 3. Ensure the cleanliness of the warehouse
Liaison Officer	1.
Rice Mill Operator	1. Responsible for the Milling Operations: 2. Only person authorize to operate the milling machine and its other components 3. Responsible for the periodic maintenance of the rice mill 4. Report to the manager the repair works for the rice mill and its components.
Mechanical Dryer Operator/ Assistant Operator	1. Responsible in the operation of mechanical dryers and serves as the technician for the mechanical drying facility.
Assistant Operator	1. Assists the mechanical/rice mill operator 2. Can able to repair/maintain the mechanical dryers and rice mill facilities 3. In charge with the operation of the mechanical dryers and rice mill
Driver	1. Perform driving of hauler and service vehicles, office errands and others may be assigned.
Security Guard	1. Responsible for the safety and peace and order of the vicinity
MARKETING SECTION
Marketing Officer	1. In-charge of looking for potential market for milled rice, rice by-products and milling/drying services. 2. Acts as quality control staff to ensure quality output that satisfies the requirement of the market.

Table 5. Personnel compensation and fringe benefits, RPS I

Position	Number	Salary/Month	Annual Salary
Facility Supervisor	1	15,000.00	180,000.00
Marketing Officer/Classifier	1	10,000.00	120,000.00
Cashier	1	8,000.00	96,000.00
Bookkeeper	1	8,000.00	96,000.00
Warehouseman	1	7,722.00	92,664.00

Rice Mill Operator	1	10,000.00	120,000.00
Mechanical Dryer Operator	1	10,000.00	120,000.00
Driver	1	7,722.00	92,664.00
Security Guard	1	7,722.00	92,664.00
Add: 13^th month pay + cash gi			129,166.00
Add: (SSS, PhilHealth, Pag-ibig, Insurance)			46,935.82
TOTAL, Php			1,186,093.82

V. FINANCIAL ASPECT

Capital Requirement and Structure

Initial capital investment

Total investment costs including the land amounts to Php 26.38 million (Table 6). The RPS recipient counterpart composed of warehouse and renovation/improvement, drying pavement, hauling/delivery trucks, transformer and office equipment, furniture and fixtures is Php 7.98 million, about 30.25% of the initial capital investment.

Table 6. Investment items and costs

Facilities	Cost, Php	Percentage
Land	1,000,000.00
Warehouse and perimeter fence	4,300,000.00
Rice Mill with components Mechanical Dryer (2)	12,000,000.00
Rice Mill with components Mechanical Dryer (2)	6,400,000.00
Drying pavement	2,000,000.00
Hauling/Delivery truck (1 Elf)	800,000.00
Transformer (3)	1,050,000.00
Weighing scale (2)	170,000.00
Moisture meter (2)	140,000.00
Office equipment, furnitures and fixtures	100,000.00
TOTAL	27,960,000.00
RCEF Mechanization Component	18,400,000.00	65.81%
Beneficiary Counterpart	9,560,000.00	34.19%

Working capital

The working capital requirement for the enterprise will cover at least one-month operating costs. This is to sustain the business operation before payment of product is collected. These include the procurement of palay and other expenses such as salaries for regular staff, wages for on-call laborers, power costs, fuel and packaging materials for a month. The total working capital requirement for RPS I is Php 6.61 million.

Pre-operating expenses

The pre-operating cost is assumed one percent (1%) of the initial capital investment and working capital. This estimated amount is allotted for business registration and other permits, pre-training cost, project study preparation and other expenditures. The pre-operating expense of the project is Php345,660.67.

Total Capital Requirement

The total capital requirement for RPS I project amounts to Php34.91 million, with initial capital investment accounting for 80% of the total project cost. The working capital for a one-month operation is 19% of the total project costs (Table 7).

Table 7. Total capital requirement, RPS I

ITEM	Amount	*Share*	Fund Source
Initial Capital Investment	27,960,000.00	80.00%
Rice mill and Dryer	18,400,000.00	-	RCEF
Warehouse, etc.	7,980,000.00	-	Equity; Devolve Fund
Working Capital	6,606,066.96	19.00%	Devolve Fund; 20% DF
Pre-Operating Capital	345,660.67	1.00%	Equity
TOTAL, Php	34,911,727.63

Source of Financing

For the source of financing, 100% of the total capital investment and initial working capital are funded by the General Fund and the 20% development fund of the Local Government Unit.

Maintenance and Operating Costs

The assumptions on calculating the maintenance and operating costs are summarized below.

Table 8. List of Assumptions

Assumptions
Working Capital
Working Capital	• Days of Sales: 30 days • Initial working capital is assumed so as to cover one (1) month operational expenses, including maintenance, overheads, administrative costs, procurement and processing cost of palay
Depreciation
Depreciation	• Double declining balance and Straight-line depreciation
Operations
Palay Buying Price	• Fresh Palay: Php15.00/kg; • Dried Palay: Php18.00/kg
Milled Rice and By-Products Selling Price	• Milled rice: Php36.00/kg • Bran: Php18.00/kg • Brewer: Ph20.00/kg
Milling Recovery	65% Dried palay to milled rice conversion rate
Utilization	1,200 hours (8 hours/day x 150 days/year)
Project Duration	10 years
O&M
Operating Costs	The operating cost structure is broken down into Procurement of palay (76% of total operating costs), Variable Costs (12%) and Fixed Costs (12%). Procurement of palay: - Fresh palay: Total volume x Php15.00/kg - Dried palay: Total volume x Php18.00/kg Variable Costs: - Handling (Procurement, Mechanical drying, Sun drying, Milling and Marketing – Php/move - Power - Fuel & Oil and - Packaging Materials Fixed Production Costs: - Administration (Salaries and benefits) - Office supplies - Depreciation - Interest expenses - Repair and maintenance - Consumables - Miscellaneous
Revenues
Project Revenues	Sales of milled rice and by-products are assumed to be the only source of revenue for the business although the project has the option to increase its revenue stream by exploring other sources of revenues such as custom milling and drying or buy and sell of palay.
Financing/Capital Structure
Capital Structure	100% Equity Depending on the available equity of the proponent
Short Term Debt (Working Capital)	• Source: • Term: • Grace period: • Interest, %:
Long Term Debt (Facility)	• Source: • Term: 7 years • Grace period: • Interest, %:

Projected Income Statement

Particulars	Year 1
Sales
Milled Rice
Premium Grade	23,834,374
Well-Milled	7,363,465
Ordinary/Straight mill	6,975,914
Rice Bran (12% of dried palay for milling)	2,575,722
Brewer (3% of dried palay for milling)	894,348
Total Sales	41,643,824
Less: Cost of Stocks	26,992,648
Gross profit	14,651,176
Operating expenses
Electricity	3,414,528
Packaging Materials	1,088,649
Fuel Consumption + Oil/Lubrication	223,470
Consumables (rice mill components replacement)	1,329,680
Handling Cost (on-call laborer)	1,202,961
Total Operating expenses	7,259,289
Fixed expenses
Administrative Salary+Incentives	1,141,094
Office Supplies	35,000
Depreciation	1,991,333
Repair and Maintenance	269,600
Interest Expense	660,469
Miscellaneous (5% total expenses)	1,917,472
Total Fixed Expenses	6,014,968
Total operating and fixed expenses	13,274,257
Net Income	1,376,919

Gross profit margin year 1= 35.18%

Net profit margin year 1= 3.31%

Return on Investment (ROI) year 1= 2.29%

The projected revenues and costs show that the business can generate profit amounting to Php1.38 million during the first year of operation and Php1.71 million during the 10^th year (Table 9).

Table 9. Projected revenues and costs

YEAR	SALES	PROCUREMENT COSTS	FIXED COSTS	VARIABLE COSTS	NET INCOME
YEAR 1	41,643,824	26,992,648	6,014,968	7,259,289	1,376,919
YEAR 2	42,060,262	27,262,574	6,630,740	7,331,412	835,536
YEAR 3	42,420,060	27,535,200	6,183,523	7,404,256	1,297,081
YEAR 4	42,809,470	27,810,552	6,314,856	7,477,828	1,206,234
YEAR 5	43,202,775	28,088,658	6,110,530	7,552,137	1,451,451
YEAR 6	43,600,013	28,369,544	5,916,959	7,627,188	1,686,322
YEAR 7	44,001,223	28,653,240	6,299,629	7,702,990	1,345,364
YEAR 8	44,406,445	28,939,772	6,125,636	7,779,550	1,561,487
YEAR 9	44,815,719	29,229,170	6,089,693	7,856,875	1,639,981
YEAR 10	45,229,086	29,521,461	6,062,314	7,934,974	1,710,337
AVERAGE	43,418,888	28,240,282	6,174,885	7,592,650	1,411,071

Cash Flow Statement

Particulars	Year 0	Year 1	Year 2	Year 3
Cash Inflow
Total Sales (Net sales)		41,643,824	42,060,262	42,420,060
Total Cash Inflow	-	41,643,824	42,060,262	42,420,060
Cash Outflow
Asset acquisition
Stock Cost		26,992,648	27,262,574	27,535,200
Operating Expenses
Electricity		3,414,528	3,448,673	3,483,160
Packaging expenses		1,088,649	1,099,536	1,110,531
Fuel Expense		223,470	225,234	227,017
Hauling cost		1,202,961	1,214,991	1,227,141
Fixed Expenses
Administrative salaries		1,141,094	1,349,874	1,360,067
Office Supplies		35,000	36,750	38,588
Repair and maintenance		269,600	269,600	269,600
Consumables (rice mill components replacement)		1,329,680	1,342,977	1,356,407
Interest Expense		660,469	1,154,589	823,123
Miscellaneous expense		1,917,472	1,963,082	1,958,237
Total Cash Outflow		38,275,571	39,367,882	39,389,071
Net CashFlow		3,368,253	2,692,380	3,030,989
add: Cash beginning	6,951,728	6,951,728	10,319,980	13,012,361
Cash Balance ending	6,951,728	10,319,980	13,012,361	16,043,349

Projected Balance Sheet

Particulars	Year 0	Year 1	Year 2
ASSETS
Current Assets
Cash	6,951,728	10,319,980	13,012,361
Total Current Assets	6,951,728	10,319,980	13,012,361

Fixed Assets
Acquisition of Fixed Assets	27,960,000	27,960,000	27,960,000
less: Accumulated Depreciation		1,991,333	3,848,178

Total Fixed Assets (Book value)	27,960,000	25,968,667	24,111,822

Total Assets	34,911,728	36,288,647	37,124,183

LIABILITIES AND OWNER'S EQUITY
Total Liabilities	-	-	-
Owner's equity
Beginning Capital	34,911,728	34,911,728	36,288,647
Net Income		1,376,919	835,536
Total Owner's Equity	34,911,728	36,288,647	37,124,183

Total Liabilities and Owner's Equity	34,911,728	36,288,647	37,124,183

Measures of Project Worth

A. Full Cost Recovery

Financial analysis indicates that the establishment of a Rice Processing System 1 for Municipality of ________ is not feasible at 1,000 hours utilization but feasible at 1,200 hours per year utilization or 23,400 bags of milled rice annual output (Table 10).

At lower utilization, the business could either decrease the procurement cost of palay or increase the selling price of milled rice. However, lowering the procurement price will deter farmers from selling their palay to the RPS while increasing the selling price could be disadvantageous to the business as it will be harder to position itself in the market.

Table 10. Measures of project worth at different utilization rates, at Php15.00/kg palay procurement cost and Php34.00/kg milled rice selling price, Full cost recovery

Utilization, Hours/Year	Measures of Project Worth
Utilization, Hours/Year	Payback Period	IRR	Net Present Value	BCR
1,000^a	8.7	2.53%	(40,93286.75)	0.74
1,200^b	5.52	12.22%	2,355,445.59	1.14

^a 8 hours/day x 125 days/year: 19,500 (50-kg) bags milled rice output

^b 8 hours/day x 150 days/year: 23,400 (50-kg) bags milled rice output

B. Rice Processing Facility and Mechanical Dryers as Public Investment

This scenario assumes that the rice mill and mechanical dryers provided by the RCEF Mechanization Program are not part of investment cost. It only includes the capital investment incurred by the recipient, the working capital and pre-operating expenses.

Financial analysis revealed that the establishment of a Rice Processing System I as public investment is feasible even at 1,200 hours per year utilization or 23,400 bags of milled rice per year output (Table 11). The proponent FCA or LGU can recover its investments in 4.82 years and the internal rate of return is 17%, which is much higher than the weighted average cost of capital at 8.00%. The net present value is positive at Php2.79 million and the BCR is 1.39. At this level of operation, the business could provide incentive to rice farmers by at least Php1.00/kg to Php1.50/kg of fresh palay, at Php15.00/kg prevailing price.

Increasing the utilization to more than 1,200 hours per year allows the business to provide price incentive to farmers higher than Php1.50 per kilogram of fresh palay.

Table 11. Measures of project worth at different utilization rates, at Php16.00/kg palay

procurement cost and Php36.00/kg milled rice selling price, Subsidized

Utilization, Hours/Year	Measures of Project Worth
Utilization, Hours/Year	Payback Period	IRR	Net Present Value	BCR
1,200^a	4.82	17.00%	6,393,609.57	1.39
BP16.00/kg	5.85	11.61 %	2,791,846.31	1.17
BP16.50/kg	>10.00	Not calculable	(5,899,604.07)	0.64

^a 8 hours/day x 150 days/year: 23,400 (50-kg) bags milled rice output

Sensitivity Analysis

Sensitivity analysis is done to determine the effects of various factors that may affect the outcome of the expected benefits and costs. The first scenario assumes a 5% shortfall in selling price while the second scenario assumes a 5% hike in the buying price of palay. The results show that the project is not sensitive to a 5% increase in the buying price of palay as the financial indicators are still unacceptable. On the same manner, a 5% shortfall in the price of milled rice is still not feasible and the effect is greater; hence, the project is more sensitive to a change in the selling price.

Table 12. Sensitivity analysis

Scenario	Measures of Project Worth
Scenario	IRR	Net Present Value
Base case	12.22%	9,028,925.74
5% Increase in buying price of palay	(1.83%)	(6,826,691.17)
5% Decrease in selling price of milled rice	(10.12%)	(10,370,626.43)

Break-even Point Analysis

At current buying price of palay, the business should sell milled rice at a price higher than Php34.20/kg in order to gain profit. At 1,200 hours utilization, the RPS should produce higher than 29,812 bags per year in order to realize income.

Table 13. Breakeven point

Utilization Rate	Breakeven Point
Utilization Rate	Price of milled rice, Php/kg	Volume of milled rice, bags
1,200 hours (28,200 bags)	34.20	29,812

VI. SOCIO-ECONOMIC AND POLITICAL ASPECT

a. Contribution of the RPS project to:

i. Farmers

The RPS is expected to serve about 5,120 rice farmers.

ii. Cooperative/association

The enterprise can be a partner of the existing cooperatives in the municipality. Wherein, either the cooperative or the LGU will buy or sell outputs and inputs.

iii. Local economy

The RPS I of the LGU can contribute to the local economy by increasing the income of the farmers through the incentive strategy and slowly eliminate the presence of middleman which is currently dictating the price of the palay. Also, if the enterprise will thrive, it can generate local employment.

iv. National government initiatives

Through this economic enterprise of the LGU, the local government of ________ will be able to increase the locally-generated income and decrease the dependency on the NTA.

b. Presence of local programs

c. Local support/Enablers

VII. SUMMARY, CONCLUSION AND RECOMMENDATIONS

The project demonstrated technical, market, organizational and financial feasibility, hence it should be financed and implemented. The project is sensitive to change in the selling price of milled rice; hence, it is important that the enterprise will execute an effective pricing strategy.

Prepared by:

________________

OIC-Municipal Budget Officer PDO 2 Administrative Asst. IV

Reviewed by:

________

SB Member SB Member SB Member

________

MGDH – Municipal Agriculture Office MPDC OIC-MEEDO

Approved:

________

Municipal Mayor

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Establishment of Rice Processing System I

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