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Essential Oil Processing Unit Establishment Plan

Prepared for Tinjure Herbs Cooperative Society

Limited Ambung -2, Tehrathum

2062 (2005)

Prepared by Khilendra Gurung

& Kabita Adhikari September 2005

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PROJECT HIGHLIGHTS (At 50% capacity utilization)

1. Name of Cooperative: Tinjure Herbs Cooperative Society Limited 2. Proponents: Local communities of Ambung VDC and adjoining

areas 3. Project Location: Ambung-2, Bhotechhap, Tehrathum, Nepal 4. Products: Essential oils (Artemisia oil, Calamus oil, Ginger oil and

Amomum oil) 5. Production Capacity: 250 kg Artemisia oil, 150 kg Calamus oil, 50 kg Ginger

oil and 100 kg Amomum oil (annual) 6. Target Market: Essential oil exporters, essential oil traders, essential oil

based herbal care products manufacturing companies/industries, cosmetics/toiletries products manufacturing companies/industries in Kathmandu

7. Raw Material: 75,000 kg Titepati, 15,000 kg Bojho, 15,000 kg Aduwa

and 1,000 kg Alaichi (annual) 8. Fuel (Firewood): 85790 kg (annual) 9. Manpower: 7 persons 10. Beneficiaries: 750 households 11. Total Capital: Rs 2,797,400/- 12. Fixed Capital: Rs 1,797,400/- 13. Working Capital: Rs 1,000,000/- 14. Annual Sales Revenue: Rs 1,580,000/- 15. Pay Back Period: 8.11 years 16. Break Even Point: 2.11 % / Rs 33,363.03/- (for each item) 17. Return on Investment: 9.02 % (annual) 18. Net Present Value: (Rs 890,997/-) at 20% discount rate over 10 years 19. Profitability Index: 0.52

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CONTENTS

1. INTRODUCTION 1 1.1 Background 1 1.2 Present Situation 1 1.2.1 Raw material supply 1 1.2.2 Resource management and its sustainability 2 1.2.3 Essential Oil Enterprise 2 1.3 Tinjure Herbs Cooperative Society Limited 3 1.4 Local Beneficiaries and Benefits 3 2. GOALS AND OBJECTIVES 4 3. MARKETING MANAGEMENT 4 3.1 Existing Market 4 3.2 Marketing Strategy 5 3.2.1 Products 5 3.2.2 Price 6 3.2.3 Distribution 6 3.2.4 Promotion 6 4. TECHNOLOGY/PRODUCTION 7 4.1 Cooperative Site 7 4.2 Production Capacity 7 4.3 Requirements for Production 7 4.3.1 Building/Store 7 4.3.2 Machinery, Equipments and Accessories 7 4.3.3 Other Infrastructure 8 4.3.4 Raw Material 8 Transportation and Storage 8 4.3.5 Supportive Materials 9 4.3.6 Fuel/ Energy 9 4.4 Product Specification and Quality Control 9 4.5 Extraction Process 10 Extraction Method of Essential Oil 10 Steam Distillation Process 10 5. MANAGEMENT 11 5.1 Ownership and Organizational Structure 11 5.2 Management Team 11 5.2.1 Management Board 11 5.2.2 Manager 12 5.2.3 Technicians 12 5.2.4 Labours and Office Assistant 12 5.3 Remuneration 13 5.4 Supervision, Monitoring and Evaluation 13 5.5 Other Stakeholders 13 5.5.1 Collectors/Suppliers 13 5.5.2 Forest User Groups 13 5.5.3 Traders 14 5.5.4 Other Firms 14

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5.5.5 Funding Institutions 14 5.5.6 Assisting and Regulatory Institutions 14 6. RISK ANALYSIS AND MITIGATION STRATEGIES 15 6.1 Raw Materials 15 6.2 Fuel/Energy 15 6.3 Sales 15 6.4 Manpower 16 6.5 Policies, Rules and Regulation 16 6.6 Competition and Market Share 16 6.7 Quality Control 17 7. FINANCIAL ASSUMPTION AND MANAGEMENT 17 7.1 Total Capital and Its Sources 18 7.1.1 Capital Requirement 18 a. Estimation of Working Capital Requirement 18 b. Fixed Capital 18 1. Fixed Assets 18 2. Pre-operating 18 7.1.2 Sources 18 7.2 Fixed Assets Management 18 7.3 Fixed Costs. 19 7.4 Variable Costs 19 a. Raw Materials and its Inventory 19 b. Energy Expenses 19 c. Supporting Materials 20 d. Manpower and Selling Expenses 20 7.5 Sales Projection 20 7.6 Income Statement 20 7.7 Cash Flow Statement 20 7.8 Balance Sheet 21 7.9 Financial Analysis 21

Pay Back Period (PBP) 21 Break Even Point (BEP) 21 Return on Investment (ROI) 21 Net Present Value (NPV) 21 Internal Rate of Return (IRR) 21 Profitability Index (PI) 21

Sensitivity Analysis 21 8. PLAN OF OPERATION 22 9. CONCLUSION 22

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1. INTRODUCTION 1.1 Background Tehrathum district is situated in the high hills of the eastern part of Nepal. It is surrounded by Taplejung in the east, Dhankuta in the west, Sankhuwasabha in the north and Pachthar in the south. The district is remote and poor in terms of infrastructure development and economic conditions of the people living in the area. However, it is rich in renewable natural resources. Non Timber Forest Products (NTFPs) are important resources of the district, whose sustainable utilization could play crucial role in the economic development of the region. Tehrathum harbors many NTFPs but very few enterprises utilize them to generate income for the poorest people of the district. Considering the ecological, social and economic development of the region, an essential oil distillation enterprise has been chosen as it ranked top among the products evaluated in the feasibility study with the local communities. The main reasons for selecting the essential oil distillation enterprise are as follows:

Large collection base and potential to harvest commercial quantities on a sustainable basis

High demand for the product and accessible in established markets. Viable technology for the enterprise. People are interested and able to run the enterprise. Resource management system can be institutionalized. Low cost involvement for the enterprise development and high employment

generation through the enterprise. Fair returns to the capital and the labor involved in the enterprise. Supportive policy for the resource management and commercialization of the

product. A large number of people can participate in the enterprise activities. A single community can sustain the enterprise in terms of raw material and

manpower supply. It makes it is easy to manage the enterprise and less complicated in the distribution of benefits to the people.

To initiate the business based conservation and development program in Tehrathum, Ambung and adjoining VDCs were identified based on the raw materials, interest of the community, easy accessible and the possibilities of institutionalizing sustainable harvesting of the raw materials. 1.2 Present Situation 1.2.1 Raw material supply The raw materials to be used in this enterprise are Titepati (Artemisia vulgaris), Bojho (Acorus calamus), Aduwa (Zingiber officinale) and Alaichi (Amomum subulatum) at present. Titepati and Bojho are naturally found in the marginal and wastelands of Ambung and its adjoining VDCs, at an elevation between 700-2,000m in Tehrathum. Major portion of Titepati will be collected from all areas of Ambung and Jirikhimti VDCs; whereas it will be collected as complements from the motorable road accessible areas of Solma, Sungnam, Basantapur, Myanglung and Sabla VDCs. Bojho will be harvested from waste swampy lands of Ambung, Jirikhimti, Solma, Sungnam, Sabla, Tamphula, Myanglung, Piple, Morahang, Srijung, Pouthak, Oyakjung, Jaljale and Simle

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VDCs. Aduwa and Alaichi are cultivated in large scales in the district by the local community. They can be easily available as stocks in the warehouses located in Jirikhimti bazar. Particularly, Ambung and its adjoining VDCs are rich in terms of resource stocks. It has thousands of hectares of lands (marginal lands, forest lands and cultivated lands) where the raw materials are abundantly found. The participatory resource assessment with local communities revealed that the sustainable yield of Titepati, Bojho, Aduwa and Alaichi in the areas is about 10 ton, 2 ton, 20 ton and 200 ton respectively in the collection areas. Based on this rough estimation, the area can feed such enterprise that would produce Artemisia oil 500 kg, Calamus oil 250 kg, Ginger oil 1,000 kg and Amomum oil 20,000 kg annually. People of the area generally collect Titepati in May-June, August; Bojho in March-April, August-September; Aduwa in March-May and Alaichi in September-October of the year. The cultivation and collection of Alaichi and Aduwa in the area started since three decades. However, the commercial collection of Titepati and Bojho has not been started yet. 1.2.2 Resource management and its sustainability Resource management of forest products in community forests is not new for Nepal. Since 1978, forest user groups (FUGs) of Nepal have been managing timber forest products according to their operational plan. NTFPs management is a new issue for most of the FUGs in Nepal. Nevertheless, few FUGs in Nepal have started managing their NTFPs in community forest areas. In Tehrathum, the community forest user group (CFUG) is not managing NTFPs in its community forest area. The forest based enterprises get permits from the district forest office to collect the raw materials. But in practice the collection takes place prior to the issuing of the permits. It is also common for the different communities to collect NTFPs in their leisure time. They usually do not consider the proper harvesting period and method. This occurs because the collectors are unaware of the harvesting system and do not get incentives to manage it. The district forest office cannot monitor all the harvesting activities done in the national forest areas since they have no adequate staffs. The local communities are also not capable or interested to manage it due to lack of tenure rights over the resources. Hence, community forestry activities could be the best measure for resource conservation and management. District forest office and some non governmental organization provide training on proper harvesting of NTFPs to the collectors; but resources cannot be managed properly unless the management system is institutionalized. The above stated policy implies for Titepati and Bojho but not for Alaichi and Aduwa, since they are cultivated in private lands and the owner manages to adopt the best techniques. 1.2.3 Essential Oil Enterprise In Tehrathum district there is no enterprise that can process aromatic plant parts to essential oils. Therefore, this proposes processing unit will be the pioneer one in the district as a whole. Establishment of this unit will add value to the unused aromatic herbs as Titepati and Bojho and will create the employment opportunity to the rural poor people of the area. On the other hand, the unit will process the agro products as Aduwa and Alaichi cultivated by the farmers in their private lands, thus mitigating the price fluctuation of these crops.

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The new processing unit is expected to get support and coordination from the district forest office, donor agencies working in the district, local NGOs/CBOs working in the field of natural resources and the local community. The Cardamom oil that is supposed to produce by this new unit will be the first in Nepal. However, Artemisia oil, Calamus oil and Ginger oil are produced by various cooperatives/ industries in the other districts. Therefore, the unit will have to overcome the marketing challenge of these essential oils. Nevertheless, the unit is committed to market these products by forming the network with the essential oils exporters of Nepal. 1.3 Tinjure Herbs Cooperative Society Limited Tinjure Herbs Cooperative Society Limited is owned by local communities of Ambung VDC and adjoining areas. The cooperative intends to generate profits and employment to the local people to create an incentive so that they will be interested in sustainable management of the resource base. It will help upgrade the economic condition of the local collectors and farmers providing the opportunities to collect/harvest and sell the raw materials. The success of this cooperative is measured by its economic return to the local communities and its effective management of the resources. The cooperative will create incentives to those poor people who are heavily dependent on the forests for their livelihood for conservation and management of the resource. With the establishment of this cooperative, those people who are only the collectors of the NTFPs and the suppliers of the raw materials will become the owners of the cooperative and managers to utilize and conserve their natural resource on a sustainable basis. 1.4 Local Beneficiaries and Benefits In addition to creating new jobs, the enterprise will help the collectors earn additional income by adding value to the products they sell through improved processing and marketing. The primary beneficiaries from this cooperative are the members forest user groups. About 750 households own this cooperative through their forest user groups and entertain the profits generated from it. They get a fair price for the collected raw materials and firewood that is primarily use for processing. The cooperative will also provide handsome amount to the forest user groups as a forest product collection fee. The cooperative employs about 7 local people for extracting essential oils thus creating employment for many more in seasonal and casual activities. Nearly 250 households in adjacent communities are the secondary beneficiaries of this cooperative who are benefited by selling the raw materials to the cooperative. Roughly half of the primary/secondary beneficiaries in these households are women. The cooperative generates annual income of about Rs 755,000/- for the local suppliers/collectors of raw materials and firewood and about Rs 276,000/- for direct employees in this cooperative. Other income generating opportunities also exist for those who transport packaging materials for the cooperative. The cooperative also uses sustainable economic gain as the primary incentive for natural resource conservation. In addition to the monetary benefits that will most likely come from increases in the sales value of the final product sold, there will also be advances in improved environmental management, community empowerment and a better quality of life.

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2. GOALS AND OBJECTIVES The main goal of the cooperative is to generate income for shareholders of the cooperative and provide incentives to local people to conserve and manage the resources in a sustainable way. To achieve this goal, the cooperative has set the following objectives:

to generate profit to sustain the enterprise, provide benefits to shareholders and the community, and create funds for resource conservation;

to generate income to local people by linking markets for collected NTFPs; to generate employment for the local people and transfer entrepreneurship skills to the

local community; to provide royalties and strengthen the forest user groups for management of forests; to provide conservation education, training and other inputs for development of the

resource. The cooperative has also established the following financial goals: Finance: By the end of the first year of operations, the cooperative will carefully evaluate and plan investments and budget expenses to generate a consistent 30% pretax profit. The cooperative will continue to generate between 30%-35% pretax profits over the next five years. 3. MARKETING MANAGEMENT 3.1 Existing Market The utilization of essential oil is very extensive and covers a wide range of human activity. Some of the important uses are as; ingredients in the manufacture of soaps, cosmetics, perfumery, health care herbal products, confectionary, aerated water, syrups, disinfectants, insecticides, fungicides, paper writing pads, greeting cards etc. The world's total production of essential oil is estimated at about 1, 00,000 to1, 10,000 tons. But, Nepal shares a negligible percentage of essential oil in terms of production despite its rich aromatic floral diversity. Most of the essential oil produced is exported, while few amounts are marketed within the country. This oil is very expensive and earns good revenue in terms of foreign exchange. The demand for essential oil is increasing day by day within the country with the advancement of education and prosperity in the country. Fragrance plays a vital role in securing consumer's acceptability in almost every product used. The following are the reasons for the scope of essential oil:

• Essential oil is now a basic raw material for consumer products meant for mass consumption. • The interest in aromatics for their therapeutic value is increasing due to the worldwide scare of the side effects of synthetics, also the revival of interest in herbs. • Essential oil has the potential of being very safe insecticide. It has been found very effective and safe for the production of food grains. • The by products of aromatic plants can be used as a mulching material, fuel, cattle feed or ploughed back to soil to improve fertility.

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The existing selling prices of different essential oils in Nepal are as follows:

SN Essential Oils Price Per Kg (Rs)1 Abies oil 3,500-4,000/-2 Amomum oil 2,000-2,100/-3 Anthopogon oil 4,500-5,500/-4 Artemisia oil 2,300-2,500/-5 Calamus oil 1,700-2,000/-6 Chamomile oil 11,500-12,600/-7 Citronella oil 400-440/-8 Eucalyptus oil 560-800/-9 French basil oil 3,000-3,800/-10 Ginger oil 10,500-11,000/-11 Jatamansi oil 6,500-8,900/-12 Juniper needle oil 2,200-2,500/-13 Lemongrass oil 660-710/-14 Mentha arvensis oil 550-710/-15 Palmarosa oil 850-945/-16 Sugandha kokila oil 3,500-4,250/-17 Valerian oil 20,000-21,000/-18 Wintergreen oil 900-1,050/-19 Zanthoxylum oil 3,500-4,000/-20 Zedoary oil 3,000-3,800/-

Source: Herbs Production and Processing Co. Ltd. and Himalayan Bio Trade P. Ltd, Kathmandu There is a huge market of essential oils in Western countries with an increasing trend. The main importers of essential oils from Nepal are Germany, France, United Kingdom, United States, Italy, Belgium and Spain. 3.2 Marketing Strategy The cooperative will offer its products to the buyers in Kathmandu at negotiated prices. The cooperative will attempt to make an association with other similar processing company/industry/cooperative to increase its bargaining capability. However, it will try to differentiate its products as superior ones in the market of essential oils and promote its image as an eco-friendly and community concerned enterprise. Furthermore, the cooperative will prepare the letter of intent for partnership and ultimately the contracts with the potential buyers (wholesalers and exporters) of essential oils in Kathmandu. The lists of potential buyers are presented in annex-13. 3.2.1 Products The Cooperative will initially process Artemisia oil and Calamus oil for Kathmandu market. Depending on the market demand, it will add to its product line with Ginger oil and Amomum oil. The most profitable essential oil will hold the major share of production in this cooperative. The cooperative will pay close attention in maintaining

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quality of oils and it will also maintain the consistency oil quality. To produce high quality products, the cooperative will introduce an effective monitoring mechanism. The essential oils are measured in kilogram. These finished products will be packaged in epoxy coated metal container or/ aluminum container or/ HDPE; US approved food grade container and the container will be labeled. The cooperative will get feedback and inputs from its customers to improve the quality and will try to meet their needs. The cooperative will attempt to satisfy the market demand and obtain higher returns. 3.2.2 Price The cooperative will offer its product at an appropriate rate factoring the cost of production and distribution, target of profits, and competitor's offer in the market. At the initial stage, market price dictates the price of its products. The cooperative will give more focus on gaining better price rather than increasing its market share or sales volume. Wholesalers and exporters are the main target customers of the essential oils produced by this cooperative. Later, international market opportunities will be explored in order to gain a better price for its products. The cooperative targets selling Artemisia oil at Rs 2,300/- and Calamus oil at Rs 1,700/- in Kathmandu at the initial stage. If the market demands for other oils (Ginger oil, Amomum oil), the cooperative will produce accordingly and price its products considering the going rate, cost of production, target of profit, and perceived value of the market for the products. 3.2.3 Distribution The cooperative entertain various types of marketing and distribution channels. Firstly, it will try to distribute its products directly to the essential oil exporters in Kathmandu. Then it will target different herbal products producers as cosmetics, soaps, perfumery, health care herbal products, confectionary, insecticides, fungicides and so on. The cooperative can distribute the products in Kathmandu or other parts of Nepal as well. It will choose the most profitable mode of distribution. 3.2.4 Promotion The cooperative will entertain various types of promotional activities that are appropriate for selling its products. The cooperative will prepare good quality products with safe packaging, which can meet the needs of the buyers. On the label, it will read the name of cooperative, name of items, batch no, net content, weight of container, and other useful information according to the market demand. The cooperative staff will meet personally and send business offers to potential buyers. It will provide samples of products to prospective clients who show interest. It will also approach the companies nationally and abroad that promote the eco-friendly and socially equitable business. It will explore the opportunities of participation in an association of herbs and herbal products, as well as enter into promotional meetings and campaigns. The cooperative will seek opportunities to form strategic alliance with various business companies and organizations for promoting its products and the cooperative image. It will further explore e-commerce (internet) for marketing.

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4. TECHNOLOGY/PRODUCTION 4.1 Cooperative Site Tinjure Herbs Cooperative Society Limited will be situated in Ambung VDC, ward no.-2. This processing cooperative will be established in an open area where sun exposure and a permanent source of water are guaranteed. The cooperative will acquire about 5-13-0-0 of land for the processing of essential oils. This processing site will be near to the settlements of Sansari, motorable road accessibility for the main beneficiaries. It is also near to the resource base and within the distance of fifteen minute from Jirikhimty Bazar, the main trading centre of Tehrathum. 4.2 Production Capacity The processing unit is expected to run 8 months a year. The unit can process 75,000 kg of Titepati, 15,000 kg of Bojho a day to produce 250 kg of Artemisia oil and 150 kg of Calamus oil at 50% capacity in the first year. The unit will increase its production capacity by 10% per year to achieve 100% capacity at sixth year of operation. While calculating the capacity of the production, capacity of fixed assets of the unit, capacity of local manpower, potentiality of local management, technology of processing, and productivity and supply situation of various inputs have been qualitatively and quantitatively studied. 4.3 Requirements for Production 4.3.1 Building/Store A 2 storey house of 903 sq feet will host the essential oil processing unit. The house will be made out of timber, stone, mud and roofing with stainless steel. The house will be divided into three parts; one big room will be used for operational activities while the other room will be for a storeroom for raw materials. The remaining room accommodates the finished products and will serve as an office room. 4.3.2 Machinery, Equipments and Accessories Essential oil extraction process involves a steam distillation technology. The main tool for the processing is a distillation unit consisting of vessels, condenser, receiver and steam pipeline with valves. They are usually made up of wrought or cast iron. The cooperative will use a boiler made up of iron. The following is the list of main machinery, tools and accessories for the cooperative. See annex 2 for the details along with the price. SN Items No. Descriptions

1. Steam distillation unit (M/S)

Made of iron (Mild Steel); Capacity, 1200 Lts.

a. Vessel 1 Made of 4mm thick insulated by glass wool b. Condenser 1 Shell and tube type c. Receiver 1 Made of 2mm thick d. Steam pipe line 1 With valves, fitting & vapor line. e. Boiler 1 Husk / Wood fired, Capacity, 300 Kg/hour 2. Weighing balance 2 One small for weighing the oils and another big one

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for weighing the raw materials and firewood. 3. Containers 40 Metal/Aluminum/HDPE with 5kg, 10kg, 25kg,

30kg, 50kg capacity

4.3.3 Other Infrastructure Regular supply of water is essential for the distillation unit. The water supply system will be managed along with drainage facilities. The cooperative is not using any chemicals during the extraction process, so there is less likely to be harmful effect to the environment. The cooperative will explore the fuel-efficient stove or try to install other efficient mechanisms to steam water. To facilitate carrying raw materials and oils, a trail road will be managed and the ground inside the unit compound will be leveled off. The office will be furnished with 5 chairs, 2 benches, 1 rack and 1 cupboard. 4.3.4 Raw Materials The cooperative will purchase a sufficient quantity of good quality raw materials from the collectors. It will have a strategy to obtain good quality raw materials by discriminating against the poor quality raw materials and paying a lower price for it. Poor quality materials could sometimes consume more time for processing and could sometimes produce poor quality oils. The existing rate of Titepati/kg is Rs 2/-, Bojho is Rs 10/-, Aduwa is Rs 20/- and Alaichi Rs 150/- in Tehrathum. The cooperative will purchase the good quality raw materials at slightly higher price than the existing price. The cooperative will also invest some amount in conservation and sustainable management of the resource base. It will initiate a scientific harvesting system and other management tools with the help of forest user group. Transportation and Storage The cooperative will purchase the raw material at the processing unit site and store it in its storeroom. The cooperative will have raw materials storage in the collection season. The inventory of raw material will be managed according to collection season and operating period. Normally collectors will bring the raw materials to the unit site. To gather the raw materials from the adjacent areas, the cooperative will adopt two options for the procurement of the raw materials. Firstly, it will send cooperative staffs to procure raw materials to the collecting community and store it there. When the procurement at the site is complete, the raw materials will be transported to the processing site. The second option is for the enterprise to use the existing trading channels. Simply it will give the responsibility of procurement to the commission agent and pay certain percentage of payment to the commission agent. In this case, commission agent or cooperative both can manage for transportation of raw materials. If the cooperative needs to be involved with the transportation, it will pay relatively small amounts to the commission agents. When the cooperative has to manage storage at a collection site, it will rent space on a temporary basis.

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Storeroom at the cooperative site will be carefully managed with the capacity of storing one season's supply of raw materials and finished products. It will be damp proof to protect the products from any damage. 4.3.5 Supportive Materials Packaging and labeling materials are the other needed materials which are essential for the cooperative. Epoxy coated metal container/ aluminum container/US approved HDPE food grade container will be used as packaging materials. The packaging will be in 5kg, 10kg, 25kg, 30kg, 50kg capacity, according to the demand of the buyers. Since the market of the packaging materials is far from the production area or/ only available in India, they will be procured by the sales person of the cooperative or order from India. Each container with essential oil will be labeled. The label will include the information about the cooperative, name of items, net content, weight of the container, raw materials information etc. A labeling sticker will be prepared for each container. 4.3.6 Fuel/ Energy Firewood is the main source of fuel for steaming the raw materials. Firewood will be managed in community forest areas and will be harvested according to the operational plan of the forests by community forest users. Dried firewood is brought at the factory site. A fuel efficient stove will be used to reduce the quantity of firewood consumption. The cooperative will consume roughly 90,000 kg of firewood a year. While the firewood can be purchased from nearby communities, the inventory of the firewood will be kept optimum leaping attention to the harvesting season of it and operation of the unit. A minimum of one month's inventory will be kept as a security stock. In the season of peak agricultural activities, the cooperative will maintain enough inventories to ensure smooth operations during and post season. 4.4 Product Specification and Quality Control Tinjure Herbs Cooperative Society Limited process Artemisia oil, Calamus oil, Ginger oil and Amomum oil from Titepati (aerial parts with leaves), Bojho (rhizomes with roots), Aduwa (rhizomes) and Alaichi (fruits / seeds) respectively. It will produce Artemisia oil and Calamus oil in the first year of its production. From second year of production it will start producing Ginger oil and Amomum oil as per the market demand. The cooperative will not compromise with the quality to fetch a good price. There will not be any chemical used in the processing procedure. The essential oils thus produced are non-toxic, non-irritant and non-sensitizing to skin. However, care should be taken to ensure that these oils would not contact with eyes, mouth and groin areas. Quality control of essential is very crucial. To ensure it, the cooperative will make a system of quality checks at various stages of oil extraction. Purchased raw materials will be well stored. Foreign materials will be removed from the raw materials. The temperature will be maintained constant throughout the extraction process. The amount of water present in the essential oils will be separated up to its purity. The oils will be filtered thoroughly ensuring no foreign particles other than oils remain in it. Each item of the oils will be packaged in separate container to be sure that they would not intermix with each other.

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Essential oils will be stored in sealed containers in dark and cool warehouse. Most essential oil deteriorates through oxidation and polymerization upon prolonged exposure to air and light. Without such precaution essences become less intense, grow darker and more viscous, develop a bleaching effect and eventually changes into a brown, odorless resin. The manager of the processing unit will supervise all these handling procedures. Prior to marketing, the essential oils items will be laboratory analyzed for its specification. They will be sent to the authorized laboratory as Natural Products Research Laboratory under Department of Plant Resources or/ laboratory of Herbs Production and Processing Company Limited. Organo-leptic properties, physico chemical properties and gas liquid chromatography (GLC) analysis will be performed by this laboratory. 4.5 Extraction Process Extraction Method of Essential Oil The basic methods of extraction of essential oil are distillation, effleurage, maceration, solvent extraction, expression and supercritical fluid extraction. However, distillation has always been the most widely practiced methods of essential oil extraction. Distillation basically is the separation of components of a mixture of two or more liquids by virtue of differences in their vapor pressure. The processing unit of the cooperative will adopt the steam distillation method for extraction process of essential oils. Steam Distillation Process The steps involved in the steam distillation process of essential oils are as follows:

Procurement of raw materials, firewood, packaging and labeling materials ↓

Storage of purchased materials with care in the storeroom ↓

Raw materials are put in the vessel ↓

Water is put in the boiler and temperature is maintained ↓

Steam is subjected into raw materials ↓

Under the influence of steam, essential oil is freed from the glands of plant tissue ↓

Both water and essential oil vaporized ↓

Vapor condensed by an adjacent condenser ↓

Liquid drained into a receptacle ↓

Separation of essential oil and water ↓

Filtration of essential oils to remove dust particles ↓

Packaging, labeling and storage of essential oils

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The same processing unit will be utilized for processing of all the four essential oils (Artemisia oil, Calamus oil, Ginger oil and Amomum oil) for few years of its operation. Titepati will be processed in fresh or semi wilted form soon after the collection in May, June and August. Whereas Bojho, Aduwa and Alaichi can be processed at any season of the year since they can be processed after the shade drying and can be stored for long time. After processing of each item of essential oil, the processing unit will be well cleaned with hot water and properly sun dried followed by cleaning with rectified alcohol, in order to exhaust the odour of previously distilled oil. Similar procedure can be applied after distilling all items of essential oils, thus ensuring contamination of oils. 5. MANAGEMENT 5.1 Ownership and Organizational Structure The owner of this cooperative are the local communities of the areas. Community forest user groups and bilateral donors will be requested to invest some amount to operate the unit. The cooperative management committee will be formed. The cooperative management committee and the forest user group committee will supervise and monitor the distillation unit and resource management activities. Business professionals and technical manpower will run the distillation unit.

Organizational Structure of Tinjure Herbs Cooperative Society Shareholders

↓ Management Board/ Board of Directors

↓ Managing Director

↓ Manager

↓ Technicians

↓ Labors

↓ Office Assistant

5.2 Management Team The management team of the cooperative consists of board of directors, managing director, manager, technicians and office assistant. The cooperative management will cooperate and coordinate with other stakeholders while performing the distillation unit activities. 5.2.1 Management Board The cooperative members and representative of the forest user groups constitute the board of this distillation unit. To monitor, supervise and assist the distillation unit development and resource management activities, one distillation development committee will be established from the local community. This committee serves as a

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bridge between the community and the cooperative board. The members of forest user group and NTFPs/Essential oil experts will provide advice and suggestions by participating in the advisory board that is determined by the board. The board will make policies and other high level decisions for the distillation unit development. A managing director who is appointed by the board will supervise the distillation unit activities and will direct the manager to achieve the objective of the cooperative. The board will recruit the manager, and managing director of the board will recruit all the manpower for this cooperative. 5.2.2 Manager The cooperative employs a manager for the management of all the activities of this unit. The manager will be accountable for all unit activities and will try to achieve the goals of the cooperative. The main responsibilities of the manager are as follows:

Procurement of the raw materials and others Manage the inventory of all the materials Manage the efficient production Control the quality of the product Supervise and motivate the manpower of the unit Keep the up to date account of the unit and get the auditing of accounts completed Analyze and control the financial activities Prepare the financial and unit operation report and submit to the board Manage the marketing activities of the oils Maintain good relationship with all stakeholders

5.2.3 Technicians There will be 2 technicians in this distillation unit at the time of 100 % production capacity but 1 technician at the initial stage of operation. They are accountable for the efficient production of quality products. The main responsibility of the technicians is as follows:

Manage the efficient production process Extract the essential oils Control the quality of essential oils Supervise and motivate the subordinate workers of the unit and report to the manager Do the activities delegated and directed by the manager

5.2.4 Labors and Office Assistant There will be 4 labors in this unit till fifth year of operation. They will assist the daily unit activities. They are mainly responsible as follows:

Assist in procurement, storing of raw materials, firewood and others Protect the unit assets, documents, etc. Assist in operation of the distillation unit Assist in quality control of essential oils Handle the distillation unit machinery at the time of production Packaging, labeling and transportation of the essential oils Manage the store activities Perform the activities as delegated and directed by the manager

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5.3 Remuneration The employees of the distillation unit will be compensated for their service on monthly basis in the beginning period of operations. But once they become trained, per kg remuneration system will be introduced. The initial compensation rate and expenses has been given in annex- 5. 5.4 Supervision, Monitoring and Evaluation The supervisory role is accomplished on different levels in the distillation unit. There will not be any specific post to perform this function. The cooperative management committee and forest user group committee will supervise the unit and resource management activities and will give necessary inputs to the board of the cooperative. The director of the executive board will supervise the performance of the manager of this unit and look after all unit activities. He/she will add inputs for efficient management of the unit. The manager is responsible for overall supervision of all the activities of the unit. He/she will delegate some responsibilities of supervision of related activities to the technicians of the unit. They are responsible for the efficient production procedures. Among the labors, some efficient workers are delegated the responsibilities to supervise the other workers of the unit. They will perform this activity with their other regular work. 5.5 Other Stakeholders Other stakeholders are groups that are not directly involved in the essential oil production but have important roles and impact on the cooperative management and development activities. Major other stakeholders are collectors/ suppliers, forest user group, traders, other firms involved in the NTFPs business, supporting institutions and funding institutions such as Chambers of Commerce, Agriculture Development Bank, and Commercial Banks. 5.5.1 Collectors/Suppliers The collectors provide raw materials and firewood to the distillation unit and suppliers provide other materials as packaging and labeling materials. The collectors will collect raw materials (Titepati, Bojho, Aduwa and Alaichi) and firewood from the private lands national as well as community forest according to the provision of their operational plan of the community forest user groups and forest rules and regulations. Unit management will maintain smooth relations with these groups to obtain the inputs. The collectors will be given instructions and training on the harvesting and post harvesting techniques in collaboration with forest user groups. The management will compensate these groups for their services and goods. 5.5.2 Forest User Groups Forest user groups are those stakeholders who are most concerned with forest management and utilization. Since the primary raw material and fuel comes from the forest, the cooperative management will closely work and coordinate with them to obtain the forest products. The forest user groups prepare and implement the operational plan for their forest. The cooperative will obtain the forest products according to their operational plan. They provide the collection license or permit to the collectors as per their

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operational plan. While they issue the collection permit to the cooperative, the cooperative will pay them a forest management fee as prescribed in the operational plan. The cooperative will assist the FUGs to conduct the forest product harvesting and management training. 5.5.3 Traders The cooperative will develop a good relationship with the traders in performing its business activities. The existing traders and commission agents can be used for obtaining various inputs like raw materials, firewood, packaging materials, office supplies etc. The cooperative can pass its products through traders to reach its target customer. When the need arises and efficiency exists to use traders for supplying the inputs and marketing products, the cooperative will manage the coordinated activities. 5.5.4 Other Firms There would be competition in obtaining raw materials as Aduwa and Alaichi if coordination does not exist among the NTFPs/ Agro products based cooperatives in Tehrathum. The cooperative will explore opportunities for coordinated activities among NTFPs/ Agro products based cooperatives in the marketing of paper these products and managing the raw materials supply activities. The cooperative will closely work with other firms in Tehrathum as well as nationally on issues relating to the NTFPs/essential oils industry. It will join the associations of the herbs and herbal products producing companies, firms and related other firms to explore opportunities in the herbs / essential oil business. 5.5.5 Funding Institutions The cooperative is expected to get support from Helvetas, Livelihood Forestry Program (LFP), Community Support Program (CSP), District Development Committee Tehrathum by funding and supporting various activities. The cooperative can get short term and long term loans from Agriculture Development Bank and commercial banks when necessary. It will maintain good relationships with funding institutions for the benefit of the cooperative. The cooperative will further explore the funding assistantship in natural resource conservation and supply aspects, marketing management, and technical production aspects. 5.5.6 Assisting and Regulatory Institutions Assisting and regulatory institutions like DFO, District Cottage and Small Scale Industries Office (DCSIO), Nepal Chamber of Commerce (NCC), Federation of Nepal Chamber of Commerce and Industries (FNCCI), and Trade Promotion Center (TPC) provides various services to the cooperative for promotion of its business and regulating its activities as per the government rules and regulations. The cooperative will coordinate and cooperate in its business and services activities to get support from these institutions. The cooperative will coordinate its activities with DFO for obtaining the forest products; with DCSIO for conducting training and obtaining government facilities; and with NCC, FNCCI, and TPC for various services including market information. The cooperative will get the services of various agencies like transport and advertising in its business activities.

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6. RISK ANALYSIS AND MITIGATION STRATEGIES 6.1 Raw Materials There is a possibility of increase in the price of raw materials. If price increase, it can go up gradually. Collection of raw materials used for extraction of essential oils is a simple process and they are found near by settlements. So, dramatic increase in the price is unlikely. Whereas, the resource is large enough, the supply of the raw materials will not be a problem for this cooperative. Since the suppliers or collectors of raw materials are involved in the ownership and management of this cooperative, the other unit if enter will not pose a threat and will not create shortages of raw materials for this unit. To ensure the sustainable supply of required raw materials, the cooperative will provide harvesting training to the collectors. The NTFPs management system will be applied in community forests and a raw materials sourcing plan also be introduced. Moreover, the rotational system of harvesting will be practiced. Test plots on various harvest regiments will be conducted and collectors will harvest in groups at agreed upon times in keeping with forest operational plans. Furthermore, the forest user groups/farmers are motivated and encouraged for the cultivation of Titepati and Bojho in the community forest lands as well as in the marginal/swampy waste lands. The quality of raw materials could be the problem for the cooperative if the collectors are not well convinced to supply high grade materials. The cooperative will pay different rates for different grades of raw materials in order to provide incentives to the collectors to supply the best materials possible to the unit. The cost of raw materials collection, transportation, and storage may slightly increase, if the community of Ambung VDC cannot feed the cooperative. To solve this problem, the cooperative will try to buy the materials at the unit site. When it has to buy from the collection communities, it can use the existing trade channel of other NTFPs and can give the responsibility of collection of raw materials to commission agents or send its employee to procure the raw materials from the communities. The cooperative will negotiate with the forest user groups and district forest office for the sustainable supply of the raw materials. 6.2 Fuel/Energy Firewood is a major source of fuel for the essential oil extraction unit. It is supplied from the private forest and the community forest nearby according to the management plan of the forest. There can be a problem in firewood supply, if no control measures are applied. To mitigate this problem, the cooperative will coordinate with local communities and forest user groups and work to prepare a management plan for firewood production. 6.3 Sales There is a good market for essential oils in Kathmandu from where most of them are exported to international markets. There can be the decrease of sales volume, selling price and increase of selling expenses, if the cooperative experiences intense competition among other producers. Moreover, Ginger oil and Amomum oil will be the new introduction to the market. Therefore, the cooperative has to bear the risk, if fails to market in the initial stage.

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But with the established market, and demand far outweighing supply, sales volume is not likely to decrease. Selling price and cost of selling price however could change. The cooperative will produce consistent quality products and improve its products according to the demand of the market. It will also diversify its target market to ensure strong sales over the long run. 6.4 Manpower Extraction of essential oils from steam distillation process entertains simple technology. Once the manpower is trained, there is low probability of experiencing manpower shortages. Most of the employees will be from the local area. They will be trained on extraction of essential oils adopting steam distillation method before production begins. However, regular training will be arranged to uplift skills for those who require such training. For the initial stage, if no local experts in oil extraction are available in the area, such technicians will be hired from outside. 6.5 Policies, Rules and Regulation Nepal has experienced frequent changes in policies, rules and regulations in many of its sectors. In particular, essential oil production enterprises have received high priority from the government of Nepal and the community forestry program has been highly appreciated. Thus, this processing unit is less susceptible to any adverse effects of policy change in Nepal. If the government restricts the collection of raw materials (Titepati, Bojho and firewood) from the community forest and does not provide license for collection of raw materials and firewood from national forest, the unit cannot operate. Also, the cooperative is highly depended on the export market of western countries. If these countries or Nepal itself changes the policy unfavorable to export marketing, the cooperative will be adversely affected. For such situation, the essential oil enterprises will have to apply pressure to develop a more favorable environment for the entire enterprise. 6.6 Competition and Market Share Although there are several essential oil (Artemisia oil and Calamus oil) processing enterprises in Nepal, there is not intense competition in this market because of the high demand for these oils. Industry demand continues to grow at a fast pace which further increases the gap between demand and supply. Supply of raw materials from the forest, on the other hand, is limited and it has increased competition among the producers in securing sustainable raw material supply. There is a medium risk of new entrants to this unit in the region. However, in a few years, there may be two or more essential oils distillation unit established in Tehrathum. As a result, the supply of raw materials may deteriorate, and increases in wages, raw material prices and other costs can occur. These changes could harm the profitability of the cooperative and the status of the resource base. If several entrepreneurs enter into the essential oil enterprise and increase the production of oils in substantial quantities, it can potentially drop down the existing price of the product in the domestic market as well as abroad. The buyers are always in better position to influence any enterprise activities for such non basic products. Since there is overwhelming preference for this product against other synthetic products, it has a good position in negotiating deals.

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Its eco-friendly and socially equitable marketing approach will also stimulate and strengthen business transactions in the targeted niche markets to allow better comparative advantages for the cooperative. The cooperative will sell the products to Kathmandu based exporters, wholesalers, and manufacturers of essential oils at the beginning. The export market will be explored later. This is a community initiated cooperative. The cooperative does not intend to increase its market share substantially because the supply side of raw materials limits it. The cooperative will also have low shares of the total market because it is concentrating on a market niche. One of the main advantages of targeting a niche market is the potential for high profits. The cooperative knows the target customers well that it meets their needs better. To save its market share the cooperative aims at providing consistent quality products in a socially equitable and environmentally friendly way in order to attract socially concerned customers. 6.7 Quality Control There is a risk of lack of quality control. The raw materials quality can degrade with the over harvesting activities which in turn, decreases the quality level of its products. The quality control of the finished products also depends on the operation activities the unit. The skill of the unit workforce can influence the quality level of essential oils. There is a high risk of inconsistency in supply of quality raw materials and production of high quality products. Once the products lose quality consistency, the market will hardly offer the good price. Moreover, any improvement in quality of products, service can take long tile to improve its image in the market. So, the cooperative will try to control its quality of products and service. It will differentiate the price rate for different qualities of raw materials and offer good prices and other services for high quality materials. The production process will be regulated and systematized to produce consistency in essential oil production. The final products will be checked and proper measures will be devised. It will also improve its service quality to raw material suppliers and target customers, or its stakeholders. 7. FINANCIAL ASSUMPTION AND MANAGEMENT For the planning process, below is given the financial assumption and analysis of this processing unit. The management of various assets and capital is also discussed below. Per unit cost of various products and services in this analysis has been kept stable for the entire projection period, as well as revenue. It has been assumed that the cost of per unit inputs and revenue of per unit kg oils will move along the same curve. If there exists any variation in expenditures and revenue while the actual operation advances, the financial analysis and management measures will be adjusted accordingly to facilitate the implementation and control of the financial matter. 7.1 Total Capital and Its Sources 7.1.1 Capital Requirement Total capitalization of this cooperative is estimated to be Rs 2,797,400/-. This amount includes the total fixed capital, total pre operating expenses and required initial working capital. The initial required working capital has been estimated based on sales turnover over three months, raw material stocks to be maintained for up to four months, and

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provisions indefinitely. The assumptions and conditions applied in calculating working capital are presented as follows: b. Estimation of Working Capital Requirement At the initial 50%, the operating expenses will be Rs 1,000,000/-. At 100% capacity, Rs 2, 000,000/- as working capital has been estimated. b. Fixed Capital Total fixed capital for this cooperative is estimated to be total Rs 1,797,400/- including fixed assets and Rs 47,500/- for pre operating expenses. 1. Fixed Assets It has been estimated that Rs 124,000/- will be required for land and improvement, Rs 644,800/- for building, Rs 977,100/- for machinery and equipments, Rs 30,000/- for accessories and furniture, and Rs 21,500/- for other infrastructure like water tank, fencing, stove and so on. 2. Pre-operating The total Rs 47,500/- has been estimated for pre operating expenses. This includes the cost for registration of cooperative, installment of machinery and tools, initial short training, and trial process etc. 7.1.2 Sources The cooperative management board and the local communities of the area will manage and invest its resources and cash equivalent to 25 % of total capital requirement and bilateral development agencies working in the field of natural resource management will be requested to invest 75 %. At the initial stage, there will be no short term and long-term loans in the capital structure. However, the cooperative can mix the loan in its capital mix in the course of operation if any financial needs arise or any external source of capital sounds easy to access and profitable to the cooperative. The cooperative can take a short-term loan for working capital and long-term loans for fixed capital from commercial banks and the Agricultural Development Bank. 7.2 Fixed Assets Management The cooperative owns the land of 5-13-0-0 for its operation. Boiler, vessels, condenser, receiver, and steam pipeline with valve are the machinery and tools the unit will use. The machinery and tools will be purchased from Indian market or Nepalese market as per the lowest quotation offer to the cooperative. The estimated total cost of machinery and tools amounts to be Rs 942,100/- and Rs 35,000/- has been allocated contingency for the machinery and tools. The transportation cost of the machinery and tools to the processing unit site approx amounts to Rs 15,000/-. The cooperative will own the furniture worth Rs 20,000/-. The cooperative will have to invest Rs 16,300/- for purchasing 2 weighing balance and Rs 8,000/- for accessories like hammers, buckets and mugs. The cooperative needs Rs 40,000/- for the containers. The cooperative will prepare other infrastructure like water tank, stoves, weighing place etc. with the amount of Rs 21,500/-The cooperative estimates the life of the building to be 12

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years, machinery and tools to be 10 years, furniture 5 years, weighing balance 5 years, containers 2 years, other accessories 2 years and other infrastructures 4 years. The total depreciation is estimated in strait in straight-line methods and it accounts Rs 163,290/- per year. The maintenance of the building, machinery and equipments, and other infrastructure is a regular activity for the longevity of these assets. 7.3 Fixed Costs The cooperative will spend Rs 32,000/- on replacement and maintenance of equipment and other materials, office supplies, marketing, and fixed manpower. The cooperative will have to spend Rs. 10,000/- for office supplies, Rs 20,000/- for marketing, and Rs 2,000/- for auditing of its account. Beside these, the cooperative will invest Rs 276,000/-on fixed manpower. An amount Rs 163,290/- has been estimated to be annual depreciation and Rs 14,750/- to be annual amortization for the first five years. The fixed cost has been held stable over the capacity utilization by the cooperative from 50% at the initial year to 100% after the sixth year of production. 7.4 Variable Costs The variable costs have been given at 50% rated capacity. The amount of Rs. 65,000/- will be invested in variable costs at full capacity of the processing unit. a. Raw Materials and its Inventory The cooperative consumes total 75,000 kg of Titepati, 15,000 kg of Bojho, 15,000 kg of Aduwa, and 1000 kg of Alaichi per year; at the rate of 1,250 kg per day in a total of 60 working days a year for Titepati, at the rate of 250 kg per day in a total of 60 working days a year for Bojho, at the rate of 250 kg per day in a total of 60 working days a year for Aduwa and at the rate of 20 kg per day in a total of 50 working days a year for Alaichi. The cooperative will provide Rs.2/kg for Titepati collector, Rs.10/kg for Bojho collector, Rs 20/kg for Aduwa and Rs 150/kg for Alaichi. Thus, it needs Rs 755,000/- including transportation for the raw materials in a year. b. Energy Expenses Main source of energy is firewood. It is used for steaming raw materials while processing. The cooperative will consume 373 kg of firewood per day. In total operation of 230 days in a year, it needs 85,790 kg of firewood for its annual operation. Total firewood cost is estimated to be Rs 64,400/- for a year including royalties. c. Supporting Materials The cooperative needs packaging and labeling materials. Epoxy coated metal containers will be used as packaging materials. The capacity ranges from 5kg, 10kg, 20kg, 25kg, 50kg which will cost a total of Rs 30,000/-. Also the cooperative will use HDPE containers with capacity of 20kg and 30kg, the cost of which is expected to be Rs 10,000/-. The total of Rs 42,250/- is estimated to be spent for purchasing packaging materials including the cost for transportation and the travel cost for the procurement.

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d. Manpower and Selling Expenses The cooperative employs 7 direct workers for its operation. The technicians work for a full year. On the other hand, the labors are employed for only 8 months a year. The cooperative invests Rs 276,000/- for the remuneration for the workforces working directly in the production of essential oils. The cooperative has planned to sell its products in Kathmandu. The production of Artemisia oil in a year will be 250 kg, Calamus oil will be 150 kg, Ginger oil will be 50 kg and Amomum oil will be 100 kg. The estimated direct selling expenses for one kg of each oil is Rs 2,300/-, Rs 1,700/-, Rs 11,000/- and Rs 2,000/- respectively, including the travel expenses of sales person. The cooperative will manage the delivery of the oils to Kathmandu according to the volume of oil. 7.5 Sales Projection The cooperative will produce 500 kg of Artemisia oil, 300 kg of Calamus oil, 100 kg of Ginger oil and 200 kg of Amomum oil a year at 100% production. In the initial year, there is a chance that the cooperative will produce medium quality products. As a result, the financial analysis of the project has been made with the sales revenue of medium quality product price over whole projection period. With the medium price rate of Rs 575,000/- for Artemisia oil, Rs 255,000/- for Calamus oil, Rs 550,000/-for Ginger oil and Rs 200,000/- for Amomum oil, the estimated annual sales revenue will be Rs 1,580,000/-in the first year. 7.6 Income Statement The income statement has been prepared for ten years. While preparing this statement, the increment in cost to selling price has kept stable because there is equal chance of costs and revenues increasing to less effect profit and loss. The income statement given in the annex 10 has been prepared with the medium estimation of selling price of its products. The income tax has not been calculated because the essential oil processing enterprise entertains the income tax holidays up to 5 years. The royalty of raw materials and firewood is levied on each unit of these products, so it has been considered as variable cost for financial analysis. This statement figures the net profit of Rs 162,210/-in the first year and Rs 324,420/- after sixth year. 7.7 Cash Flow Statement The cash flow statement reveals that the cooperative inflows total Rs 2,580,000/- and out flows Rs 1,844,900/- in the first year of operation. 7.8 Balance Sheet The balance sheet reveals that the total capitalization of the project will be met with the long-term liability of shareholders' equity. 7.9 Financial Analysis

Pay Back Period (PBP) The pay back period of this project is 8.11years.

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Break Even Point (BEP) Break even point is 6.67 kg of Artemisia oil, 4.00 kg of Calamus oil, 1.33 kg of Ginger oil and 2.08 kg of Amomum oil in sales unit, with Rs 12,269.3 for Artemesia oil, Rs 5,441.27 for Calamus oil, Rs 11,736.07 for Ginger oil and Rs 4,267.66 for Amomum oil in sales amount at the initial year.

Return on Investment (ROI) The return on investment is 9.02 % of the total capital investment on this cooperative at initial 50% capacity.

Net Present Value (NPV) Net present value of the cooperative will be Rs (890,997.24) positive over ten year's period at 20 % discount rate.

Profitability Index (PI) The profitability index of this project is 0.52 based on total present value over ten years at 20% discount rate. Sensitivity Analysis For NPV and PI, net cash flow of ten year has been taken into account. BEP has based on the costs, and selling prices and ROI has based on the capital investment of Rs 1,000,000/- and net incomes at initial 50% capital utilization on following condition.

Condition PBP (year) BEP (kg) BEP (Rs)

ROI (%)

NPV (At 20%)

PI

Original assumption 8.11 11.62 33363.03 9.02 (890997.24) 0.52Decrease of selling price of oils by 20%

23.98 14.68 33714.53 -1.5 (864383.25) 0.53

Increase of raw materials buying cost by 20%

13.47 11.62 33363.03 3.98 (1270837) 0.31

Increase of all inputs costs by 20%

9.69 11.62 33363.03 7.52 (1250477.25) 0.43

Decrease selling price by 20% and increase all inputs costs by 10%

8.9 14.68 33714.53 8.20 (1304678.75) 0.36

Decrease selling price by 10% and increase all inputs costs by 10%

11.79 12.97 55700.88 5.38 (1304678.75) 0.36

Note: Costs of all inputs includes all operating cost including fixed cost but excluding depreciation. 8. PLAN OF OPERATION The operational plan acts as a guideline for the cooperative development activities. The arrangement of time line, responsibility assignment, methods, and support had been

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clearly identified. This processing unit development plan is a joint effort of local communities, forest user groups, district forest office, district cottage and small scale industry office, and other stakeholders. Registration of the cooperative has been completed. Preparation of water management system, other infrastructure, construction of building, purchasing of machinery and tools has to be done at the earliest possible period. These activities will be assigned to the management board. Procurement of raw materials, firewood, and other necessary goods will be done before the production starts. The production of essential oils will begin by November, 2005. 9. CONCLUSION The ecological, financial, technological and social analysis of this project clearly indicates that the project is highly feasible and sustainable. Medium investment in fixed assets, high cash inflows to the communities, high income and employment generation, use of simple technology and sustainable supply of raw materials from the local source, and participation of local communities in management and ownership of the cooperative have enabled the sustainability of this cooperative. With the high return on investment, short pay back period, low percentage of break even point, high rate of internal rate of return and profitability index, high positive net present value, and high liquidity ratios, this cooperative is financially profitable and viable in the short as well as long run. This project has low risk from raw material sourcing to marketing aspects. This project will make positive impact on resource conservation and social, technological and economic development in the society. While implementing this project, separate detailed resource conservation and management plan, marketing plan, technical production plan, and monitoring plan will be devised to strengthen this project for better benefits to the shareholders and customers of this cooperative and to the whole society in the long run.