Economic assessment of producing a fluting paper using agricultural residues – a case study: Iran, Mazandaran Province

Figures & data

Table 1 Harvest index for different agricultural products.

Product	Harvest index
Wheat	0.42
Barley	0.40
Rice	0.50
Corn	0.29
Seed oil	0.28
Cotton	0.40
Sources: Tashakori et al. (2004), Edalatifard (2004), Golipoor et al. (2004), Yahyaei (2007), Mashi et al. (2008), Harivandy et al. (2005), Mahmoudi (1998) and Niknejad et al. (2008).

Table 2 The average usable agricultural residue estimate in Mazandaran and Iran during 2000–2010.

The amount of agricultural waste	Cotton (ton)	Corn (ton)	Barley (ton)	Wheat (ton)	Seed oil (ton)	Rice (ton)	Average (ton)
Mazandaran province	6260	10,050	52,060	143,700	185,900	884,300	1,282,270
Iran	580,048	3,998,592	3,859,266	15,622,974	842,200	2,393,211	27,296,291

Table 3 The operation of the fluting paper mill.

Production	Unit	Wholesale price per unit ($) (2010)	Annual capacity	The total value of annual production capacity ($)
Fluting paper	ton	520	10,000	5,200,000
Total annual production				5,200,000
Note: 270 workdays a year, 2 work times 7.5 h in day (useful time regarding allowed unemployment).

Table 4 The estimate of raw material consumption cost.

Raw material	Amount needed (tons)	Cost per unit ($)	Total cost ($, × 1000)
Agricultural residue	32,000	52	1664
Sodium hydroxide	2000	250	500
Lime (to neutralisation and precipitation of wastewater chemicals)	1200	30	36
Packaging material (polypropylene sacks)	42	365	15.4
Other than the raw materials (3.5%)^a			77.6
Total annual value of raw materials			2293
^a In this study, nonessential and rarely used materials that have little technical and economical values are not mentioned. For this reason, 3.5% of consumptive material values are allocated to these items.

Table 5 Total item working capital.

Description	The number of working days	Total value ($)
Internal supply of raw materials^a	45	382,167
Staff salary and benefits^b	68	56,149
Energy types^c	68	28,728
Repair and maintenance costs^d	60	25,959
Depreciation costs^e	60	50,568
Selling expense (0.5%)	–	26,000
Other current expenses (5%)^f	–	28,498
Total working capital ($)		598,469
^a The total annual raw material cost of the project is estimated at $2,293,000.
^b The workforce is appraised in production and nonproduction parts. Monthly payroll of the staff is computed based on common criteria. It should be mentioned that, for exact estimation of reward and Nowruz gift, annual payroll is based on 14 months a year. Also, 23% of the total personnel payrolls as insurance premium are the staff. The total annual staff payroll and benefits cost of the project is estimated at $222,944.
^c The consumed energy cost is estimated at $114,065 annually.
^d Maintenance cost is estimated at $119,815 annually.
^e With the passage of time, fixed capital except for the ground (the ground used for establishing the building) will lose usability. Thus, the cost price of such assets should be added to the expense account regularly and gradually during their expected life. This gradual cost price reduction is called depreciation. The consumptive depreciation costs were estimated at $229,355 annually.
^f To increase reliability of the accounts and decrease possible risk, 5% of the above is added to the total in order to compensate for the possible items that are not considered.

Table 6 Total component and the estimate of fixed capital.

Description	Total value ($)
Machinery and manufacturing equipment^a	1,607,278
Land	340,900
Building and landscaping^b	1,153,280
Vehicles	75,637
Equipment and public facilities^c	214,837
Office furniture	10,840
Unforeseen costs (3.5%)	119,097
Preoperative costs^d	55,000
Total fixed capital	3,576,869
^a The value of all the machinery and equipment was estimated based on the conducted enquiry in addition to 10% of installation and operation costs with equipment total costs.
^b It involves landscaping (landscape and parking lot, green space, walling and lamps) as well as building costs (production saloon, warehouses, installation and levorotatory, official buildings, etc.).
^c To improve the efficiency, a production unit, in addition to the main production plants, needs a set of peripheral general equipment and installation such as laboratory, power installation (power for production units, compound and installation), emergency power installation, water installation (water needed for production line, installation, buildings and compound), fuel installation, heating installation, cooling and ventilating, steam-producing installation (steam boiler), fire-extinguishing installation and sewage-refining system.
^d Pre-operation costs include the costs of primary studies, justifying project, unit establishing permit and plan's contracts registry as well as costs associated with preliminary training, setup and pilot operation and current costs during project operation.

Table 7 The estimate of investment.

Description	Total value
Fixed capital	3,576,869
Working capital	598,469
Total ($)	4,175,338

Table 8 The estimate of fixed and variable costs.

Description	Fixed percentage^a (%)	Fixed costs ($)	Variable percentage^a (%)	Variable costs ($)	Total costs ($)
Raw materials	0	–	100	2,293,000	2,293,000
Energy types	20	22,813	80	91,252	114,065
Repair and maintenance costs	10	11,682,5	90	105,133.5	116,815
Staff salary and benefits	85	189,502.4	15	33,441.6	222,944
Unforeseen costs (3.5%)	–	7840	–	88,299	96,139
Operating cost	15	9300	85	52,700	62,000
Factory insurance (0.2%)	–	7154	–	–	7154
Obtained facility costs	100	427,249	–	–	427,249
Depreciation costs	100	229,355	–	–	229,355
Total fixed and variable costs	–	904,895.9	–	2,663,826.1	3,568,722
^aThe mentioned percentages are based on Industry and Mine Ministry and Iran Small Industry Organisation and Industrial Parks Organisation (ISIPO) statistics.

Table 9 The estimate of total annual costs.

Description	Annual costs ($)
Fixed costs	904,895.9
Variable costs	2,663,826.1
Total annual costs	3,568,722

Table 10 Result of economic study of fluting paper project.

Row	Description	Formula	Solution	Results
1	Finished price per ton of paper ($)	Total annual costs/nominal capacity	3,568,722/10,000	356.88
2	Total annual selling	Production capacity ×  price selling	520 ×  10,000	5,200,000
3	Break-even point	Fixed costs/(total selling – variable costs)	904,895/9/5,200,000 – 2,663,826/1	35/68%
4	Value of sales in break-even point	Fixed costs/(1 – variable costs/total selling)	904,895/9/(1–2,663,826/1/5,200,000)	1,846,726/23
5	Non-worth profit	Total selling – total costs	5,200,000 – 3,568,722	1,631,278
6	Functional costs	Non-personnel costs of central office+Current costs of laboratory + sale costs (0.5%)+ transportation costs (0.5%)	–	62,000
7	Functional profit	Non-worth profit – functional costs	1,631278 – 62,000	1,569,278
8	Non-functional costs	Depreciation costs preoperative + the financial facilities costs of long term and short term	–	432,749
9	Worth profit	Functional profit – non-functional costs	1,569,278 – 432,749	1,136,529
10	Internal rate of return	(Worth profit ×  100)/total investment	(1,136,529 ×  100)/4,175,338	27.22%
11	Pay-back period	Total investment/worth profit	4,175,338/1,136,529	Three years and nine months (45 months)

Table 11 Abstract result of economic study of fluting paper project in Mazandaran province.

Finished price per ton of paper ($)	356/88
Total annual selling ($)	5,200,000
Break-even point (%)	35.68%
Value of sales in break-even point	1,846,726/23
Worth profit	1,136,529
Internal rate of return	27.22%
Pay-back period	Three years and nine months (45 months)

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