How Much Do I Need To Start A Palm Oil Processing and Production In Nigeria
In palm business, you can make money from its production (farming), processing (making market-ready red oil) or both. Whichever you choose, I don’t need to tell you that palm oil dealers are always happy making cash this season. Have you checked the price of red oil recently?
Why you should invest in palm oil processing and production
Palm oil is a multipurpose food ingredient used all over the world. During my undergraduate days at the university, i never considered myself fully stocked with foodstuff until I had red oil. With palm oil you can prepare any type food.
As such, the demand for the commodity is always high. I always took money to the woman who sold palm oil, and she always took money to her suppliers who would take money to the producers and, you get the drift.
• Palm oil is an important export commodity which has a high demand in Africa and even Europe. Africa produces just 5% of the world’s demand for palm oil. Leaving a large portion of production and exportation to Indonesia and Malaysia.
• Palm oil has many uses. Apart from cooking, it is used as raw material for industrial products such as; soap, bio-diesels, margarine, cosmetics, pharmaceuticals, lubricants, etc.
• Palm oil has a long shelf life. It can be stored for over one year without losing nutrition, taste or quality. You may have observed people buy red oil during one period of the year and sell in another period. This is good business.
• It has low cholesterol level, improves eyesight, contains vitamin E, and increases the body’s immunity to diseases.
• Palm kernel oil is also extracted from the palm kernel fruit. Therefore if you want to go into palm oil processing, you will also get a bonus for extracting palm kernel oil from the seeds which is equally important. No part of palm is wasted.
• The weather condition in Nigeria favors the growth and cultivation of palm trees.
As the world’s attention stays heavily focused on energy and technology, the few entrepreneurs who focus on large scale agriculture are reaping good profits from their investments. The agricultural business ecosystem is widespread, because of the hundreds and possibly thousands of various crop types that can be grown and sold as an income stream.
In the lot of these possible agricultural segments lies a profitable niche that only a few would dare venture into. This is the palm oil business.
Growing, buying, and selling palm oil products is a highly profitable agricultural business for any new and existing farmer, or agriculture entrepreneur to venture into. The potential in this venture makes the palm oil business one of the largest income streams for the eastern part of Nigeria, and several other developing countries in the world.
Business Opportunities in the red palm oil production in Africa
There are a lot of juicy opportunities for entrepreneurs to make money in the growing and successful global palm oil business. We shall explore the different opportunities in this market and their enormous potentials for investors and businesspeople.
Opportunity #1 – Grow an oil palm plantation
Most parts of Africa, especially West Africa, lie in the world’s oil palm belt – a region which produces the best results for oil palm plantations.
However, Africa produces much less palm oil than it is truly capable of because not enough palm trees are cultivated on a commercial scale.
The features which make Africa most suitable for cultivating oil palm plantations include:
• An all-year-round hot weather – The oil palm grows well where it is hot all the year round: between 25 and 28 degrees Centigrade. Hot temperatures allow the oil palm to grow many leaves and, as a result, produce more fruit. Higher temperatures also mean that the palm trees are less prone to disease attack.
• A lot of sunshine – Oil palms need a lot of sunshine to grow well. All year round sunshine helps the palms to produce large and well-ripened fruits which contain a lot of oil.
• Abundant rain – Oil palms are not likely to do very well in areas with water shortages. Plentiful rain is very good for the trees and allows them to grow a lot of leaves which lead to more clusters of fruit.
• Rich, deep, flat and permeable soil – The oil palm needs access to water and mineral salts deep in the soil to do well. If it does not have full and easy access to these essential nourishments, the yields (harvest) may be very poor. The soil must also be able to allow water to soak through (permeable) to ensure that the soil is always well drained. However, in the absence of adequate minerals in the soil, fertilizers can be used to supplement the existing supply.
Despite these huge advantages, more than 80 percent of the palm oil consumed in Africa today come from palm fruits picked from oil palms in rural households, or from oil palm trees that grow in the forest.
A more deliberate effort can be put into cultivating modern oil palm plantations that contain selected (hybrid) oil palms with very high yields.
The fruits of the oil palm (known as ‘palm fruits’) contain a pulp (which is yellow in colour) that is crushed to produce the palm oil. The seed of the fruit contains a white inner kernel which is also crushed to obtain palm kernel oil. Palm kernel oil has hundreds of uses in the home and industries.
If you’re considering an oil palm plantation, growing the right variety of palm fruit will be most essential to the success of this business.
A significant majority of the palm fruits in Africa are of the Dura variety which is characterized by a thick shell and a small pulp.
On modern oil palm plantations, this variety is crossbred with the Pisifera variety to produce a hybrid (Tenera). The Tenera variety is every plantation owner’s favourite because it has a lot of pulp, a thin shell and a big kernel.
Selected varieties like the Tenera ensure a much larger yield for every hectare cultivated!
Important things to consider before starting an oil palm plantation
• The site for your plantation must be chosen carefully. A flat landscape that is not prone to erosion is most preferable. If the land is not flat, it can seriously affect transport around the plantation and cost you a lot.
• Starting an oil palm plantation will require significant upfront investment. After planting, it usually takes about 3 to 5 years before the trees start to produce any fruit that can be harvested. During this period, money will be spent on fertilisers, improved seedlings and labour for workmen who will be needed to keep the site free of weeds. You should ensure you have sufficient working capital to cater to these expenses before you start.
• Oil palms can be a source of long term income. Once the ground work is well done, and the palm seedlings are properly cared for in their early years, oil palms can live for up to 80 years! Do not try to cultivate too large an area, or the work will be badly done. It is better to cultivate a small plantation and to do the work well, and then gradually increase the size of the plantation. A small plantation that is well looked after can yield more than a large plantation that is badly looked after.
Opportunity #2 – Start a palm oil milling and processing plant
Traditional processing is one of the leading reasons for low palm oil production in Africa.
Due to the crude methods of squeezing out palm oil from the pulp of the palm fruit, a lot of oil still remains in the pulp and is lost through this ineffective and wasteful process.
Modern mills process harvested palm fruits into final grade palm oil with little or no waste and minimal use of human power. Using machines, the process typically involves sterilizing and threshing the bunches to free the palm fruit, mashing the fruit and pressing out the crude palm oil.
The crude oil is further treated to purify and dry it for storage and sale in both local and international markets. An investment in a milling plant can be a great source of income if it is located close enough to oil palm sources. The two major ways to make money from this venture are:
Charge a service fee to mill/process harvested palm fruits for customers. You could charge a flat fee on a per kilogram or per hour basis. The value you offer to customers is a quick, easy and labour-free way to get their palm fruits milled and processed to palm oil.
Another popular method of making money from palm oil mills is to buy off harvested palm fruits directly from small-scale farmers, produce the palm oil and then sell directly to both local and international markets.
This strategy has a greater potential for huge profits because of the mill’s capacity to buy palm fruits at low prices and sell the processed palm oil at a much higher price.
To succeed with this strategy, there are a couple of things you will need to watch out for:
Operating a mill is likely to require a lot of electric power. With high fuel prices and poor electricity supply in many parts of Africa, this is likely to be the single most influential and challenging factor in determining the profitability of this venture.
Another important factor is the quality of palm fruits you buy from farmers. You should ensure that they are of the high yield variety (preferably Tenera). A failure in this area may lead to low palm oil production volumes and poor profits.
Other factors to consider before starting an oil mill are skilled labor to operate and maintain the machinery, quality control in processing the palm oil and easy access to markets.
Opportunity #3 – Become a bulk trader
Bulk traders buy processed palm oil in large quantities and stock them for export or sale in the local market.
During harvest, usually between March and May of every year, the prices of palm oil reach very low levels due to the abundance of the product on the market. However, during the off-peak (non-harvest) periods, when palm oil becomes scarce, the prices expectedly go through the roof.
This scarcity usually sets in between September and December and can see palm oil prices rise by as much as 100 percent.
This cycle of scarcity and abundance continues because of inadequate storage facilities to ensure an all-year round supply of red palm oil to the market.
A bulk trader sets up a stocking program that allows him/her to buy from the market at very cheap prices during times of abundance and sell back to the market when scarcity sets in. This strategy obviously requires storage space and may incur significant holding, handling and transportation costs.
Most bulk traders buy palm oil from local producers in the hinterland and countryside during the harvest periods and store them away in huge containers and barrels until the scarcity periods when they can sell them in towns and cities (or export) for a very tidy profit.
Palm oil’s ability to retain its natural consistency, even at high temperatures, allows it to withstand long storage periods (usually up to one year). This period allows the bulk trader enough time to gradually sell off the product and make good profits in the process.
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Uses of this Business Plan (PDF and Word)
This business plan can be used for many purposes including:
• Raising capital from investors/friends/relatives
• Applying for a bank loan
• Start-up guide to launch your business
• As a business proposal
• Assessing profitability of the business
• Finding a business partner
• Assessing the initial start-up costs so that you know how much to save
• Manual for current business owners to help in business and strategy formulation
Contents of this Business Plan (PDF and Word)
This business plan include:
• Marketing Strategy
• Financial Statements (monthly cash flow projections, income statements, cash flow statements, balance sheets, break even analysis, payback period analysis, start-up costs, financial graphs, revenue and expenses, Bank Loan Amortization)
• Industry Analysis
• Market Analysis
• Risk Analysis
• SWOT & PEST Analysis
• Operational Requirements
• Operational Strategy
• Why some people in this business fail, so that you can avoid their mistakes
• Ways to raise capital to start your business