ORGANIC OREGANO OIL - SUMMARY OF PROPOSED PROJECT

This is a preliminary presentation of  a feasibility study the aim of which is to investigate the possibilities of a full-blown project with the subject of Medicinal and Aromatic Plants (MAP) in Greece. Promising business activities like MAP exploitation via an integrated approach were not always realized in the past, partly because their promises remained diffuse.  However, as it shown by this study, these activities give excellent results, provided that the whole approach has an integrated and well-organized character, stimulating a successful business that will realize all advantages offered by the MAP.

More specifically, the present proposed project includes the following main activities: cultivation of MAP (oregano, rosemary, lavender, thyme, lemon balm, with principal focus on oregano, which is a product with a strong Greek character), production of high quality oregano oil, sales of oregano oil as well as of high quality dry oregano (conventional and organic) and sales of essential oils extracted from the other four species, and the development of R&D activities in order to create new products in the future. 

The MAP business activity has been chosen among other alternatives due to the following basic reasons:

·         The MAP essential oils export-import data on a global scale show that there is a significant rising trend during 2001-2005.

·         The international market for MAP products is estimated to be of US $ 62 billion, and it is poised to grow to US $ 5 trillion by the year 2050 (Purohit and Vyas, 2004)

The increased global interest in the use of MAP and the increasing demand on raw materials by various processing industries (pharmaceutical, food, cosmetic, perfume, etc) have resulted in a vast and expanding market for MAP (an average 10% annual growth of the European market) in the last decade.

In the US and world markets, demands for MAP materials should continue into the foreseeable future.  Current and future changes in demographics (age, culture, incomes, diseases, and other human conditions), public concern about healthcare (availability and expense), and familiarity with plant products can be expected to bring more people to sample and commit to using MAP products (Craker, 2007). 

·         The Common Agricultural Policy (CAP) of the European Union calls for the restriction or/and the elimination of subsidies for a number of cultivations (tobacco, cotton, industrial tomato, sugar beet etc.), as well as for the mandatory application of the EU Regulation (E.C.) No 1831/2003 that concerns the prohibition/restriction of the use of chemical antibiotics as feed additives.

·         Greece has a special comparative advantage in the area of MAP cultivations due to highly favorable soil, climate conditions and genetic plant material of the selected MAP species.                                          

·         There is a high market demand for Greek products in the MAP sector, at both the national and mainly the international level.

·         During the last decade, there is a strongly felt need in Greece for the replacement of traditional, subsidy-based agriculture with more market-oriented farming.

·         The oregano cultivation and the production of oregano oil as the main activity of the investment is based on existing data showing that the demand in 2006 was estimated to be one hundred times more than the delivered quantity.

·         This field is almost virgin in Greece, from the point of view of developing an integrated, large scale, well-organized business activity.

·         Both the state and the farmers are convinced that they have to turn to a competitive business activity and to alternative agricultural activities.

·         The investment activity on the MAP sector provides economic, environmental and social benefits, which ensure a positive response from politicians and environmentalists.

·         The selection of the MAP sector is absolutely compatible with a possible future activity of the company in the field of aromatourism and the production of biological and functional foods.

As previously mentioned, the following are the species selected for mass production:

·                     Oregano (Origanum vulgare ssp. hirtum )

·                     Rosemary (Rosmarinus officinalis)

·                     Lavender (Lavandula spp)

·                     Thyme (Thymus sibthorpii)

·                     Lemon balm (Melissa officinalis)

The ensuing six criteria were used in choosing these species:

1.     High market demand (national and mostly international).

2.     Knowledge and experience in cultivating and processing those species.

3.     High adaptive ability to local soil and climate conditions.

4.     Commercial value of the obtained products.

5.     Interest of producers and support from the local community.

6.     The special genetic characteristics of the Greek plant material.

The products of these cultivations (drogues or essential oils) can be sold to the national and (most interestingly) to the international markets. The following strategic opportunities have arisen:

·       The scientific results on the positive health and growth effects of including oregano oil in the diet of nursery pigs.

·       The concerns about potential risks for human health due to the use of antibiotics in animal feeds that have led to their ban as growth-promoters throughout Europe since January 1, 2006 (Regulation (EC) 1831/2003).

·       A rapidly increasing international demand for MAP plant extracts and fresh and dry products by various types of industries (e.g., cosmetology, pharmaceutical and food industry, animal antibiotics, etc.). 

The competition in this case can be dealt with:

·         Achieving a high quality of the MAP that will be used as inputs in the processing activities.

·         Getting quality certification of all production and processing stages.

·         Exploiting the significant scale of production that will result in lower costs relative to existing or potential competitors and in the ability to sign contracts for large volume quantities.

                                                                                  

Moreover, the production of a relatively extended range of products in various forms will increase the selling options while the quality of the Greek plants itself will be an excellent marketing advantage in the international markets. 

In addition to the above, the project is supported by a team of experts (professors, researchers, managers, agronomists) who are highly experienced in the various aspects of this business activity (cultivation, processing, management, finance, marketing, etc).

In practical terms, the main features of the project include the following:

·       Use of 100,000 stremma of land (30% dried land and 70% irrigated land) in areas where there are excellent soil and climate conditions for the examined cultivations and there is a good transportation network in order to transport the final products to the national and international markets. This is the basic scenario, while there is a second scenario that uses only fifty thousand stremma of land. However, it should be noticed that, for the purpose of this analysis, the first scenario has been taken into account.

·       A 20% of this land will be bought in order to ensure a minimum production of oregano oil and oregano dry drogue, as well as of oils extracted from the other plants. The remaining 80% of the land will be covered by contracts with producers, based on the price per Kg of dry plant material delivered to the company. The rate of buying own land is the following: 5,000 stremma / annum for the first three years, 3,000 stremma for the fourth year and 2,000 stremma for the fifth year. Regarding the contracts with independent producers, the rate is the following: 5,000 stremma/annum for the first three years, 7,000 stremma for the fourth year, 8,000 stremma for the fifth year and 10,000 stremma/annum for the years 6-10. 

·       A 92% of the land will be cultivated with oregano for providing oregano oil (90%), conventional oregano drogue (1%) and organic oregano drogue (1%). The remaining 8% will be covered with rosemary, lavender, thyme and lemon balm.

·       A processing unit for the production of oil, which will be constructed in a progressive mode in order to cover the processing needs as they will arise with the acquisition of the land. This unit will be assembled in a modular basis, having all the necessary equipment for the processing of the MAP (harvesting, handling, drying, storage, distillation, packaging, testing). 

·       In addition, the investment will include the following: a number of agricultural machines necessary for the cultivation of own land, a laboratory for R&D activities and a small piece of land for producing seeds that will be used in the effort of developing better plant propagation material for cultivation.

In order to investigate the feasibility of this investment, the following basic assumptions were made:

·         The necessary investment capital will be covered on a 100% basis by capital provided by the investor (no loans, no grants taken).

·         The investment will be realised progressively over a period of 10 years.

·         The investment capital includes an amount of € 1,500,000 for operating expenses for the first period of the company’s operation.

·         The cost of money is estimated to be about 11%.

·         All costs and revenues have been estimated following a conservative analysis.

Under  analysis (existing and be presented  on demand) the following indices have been estimated:

·                     Net Present Value (NPV): € 74,532,407.78

·                     Internal Rate of Return (IRR): 48.31 %

·                     Payback Period: 6.75 years

Moreover, a sensitivity analysis show that in the worst case, with all costs increased (cost of land, cost of processing unit construction) and the revenues decreased by 5% per annum, the NPV is equal to € 62,674,018.23, while the IRR is equal to 40.70%.

It is worth noting that the investment return can be even higher in case the company receives a state grant that covers 25% of the construction costs for the MAP processing unit. In addition, the full business plan analysis of the investment could take into account the case of using loans and of re-investing an amount of the profits in order to decrease the capital provided by the investor.

Taking into account the aforementioned data, it is quite clear that the proposed investment provides very good expectations which, in any case, are necessary for mobilising resources and visibility. The expectations are more specific and concrete, compared with the diffuse promises of MAP provided ten years ago. The proposed orientation is focused and selective, aimed to exploit all of the opportunities that exist today and expected to develop in the future. The modular realisation of the investment provides the advantage of investing in consecutive steps, which are related to the needs of the market. It also allows for significant flexibility in following the market demands related to the various parts of the MAP supply chain (i.e., including the cultivated MAP). The realisation of the whole investment provides the opportunity to develop an integrated and well organized MAP production unit that will be internationally competitive, profitable and flexible.

All of these points provide an additional advantage to the investors. This is the ability either to try an IPO in the future when the times will be better for the Stock Exchanges performance or sell a part or the whole company to other investors.  Therefore, the investment itself provides an excellent exit option for the investors.

In conclusion, it is clear that the proposed investment is a very good opportunity for the interested investor in order to develop a successful and profitable business activity in the area of MAP, following and taking advantage of the trends that lead to better standards of living. These trends are expected to be stronger in the future, according to the extant studies and estimations, providing, thus, a nice window of an alternative, environmentally friendly and profitable business case.