How To Start And Run A Profitable Palm Oil Business In Nigeria

How to start a profitable palm oil business

Looking for a low-risk and profitable agribusiness to venture into? Why not go into the palm oil business.

Research in 2018 estimated Nigeria’s local production of palm oil to stand at 930,000 tonnes which is significantly below the estimated consumption of 1.4 million tonnes.

This article provides a thorough guide for anyone interested in starting a palm oil business in Nigeria.

History/Economics of the oil palm industry

In the 1950s and 1960s, Nigeria was a global leader in the palm oil Industry. The local production of the commodity grossly exceeded domestic demand and so the surplus was exported for hard currency.

However, upon the discovery of crude oil and the subsequent civil war that ensued mainly in the oil-producing belt, Nigeria lost its pride of place to Malaysia and Indonesia.

While it’s easy to blame the dwindling Nigerian palm oil fortunes on the discovery of crude oil, neglect of the sector, aging trees, and the overreliance on crude processing techniques could also be some of the major factors.

Nonetheless, since after the civil war in the early 1970s, there has been a year-on-year increase in the production of palm oil. But the local demand for the commodity has continued to rise steeply outgrowing production and supply resulting in price hikes.

Research in 2018 estimated Nigeria’s local production of palm oil to stand at 930,000 tonnes which is significantly below the estimated consumption of 1.4 million tonnes.

Using the December 2019 World Bank price Index for crude palm oil ($769.93), the Country lost approximately 90, 000 000 importing the shortfall in one year.

To encourage local production, the government introduced a 35% import tariff on Crude Palm Oil (CPO). Despite this, the shortfall in production is far from being met.

The industry remains fragmented and is largely dominated by smallholder farmers and processors — which results in low output and poor quality of CPO.

That is to say that the palm oil industry’s true potential remains largely untapped and anyone can invest in the industry and get good dividends.

See also: How To Start A Profitable Bitter Kola Exporting Business In Nigeria

Benefits of the Oil Palm tree

The oil palm tree is a tree of immense economic benefits. Palm oil which is its main derivative is the main constituent in most of our local delicacies. But asides from palm oil, palm kernel, and palm kernel oil, numerous other products can be derived from the highly economic tree and some by-products via the process of making oil.

Virtually every part of the oil palm tree can be transformed into a useful product. Below are some of the products that can be derived from the oil palm tree

Palm Wine

The liquid in the stem of some oil palm species (sap) can be tapped and consumed as natural wine. The sap that is collected freshly is usually sweet and nonalcoholic. But because of the presence of naturally occurring yeast, the sweet palm wine ferments within hours into a mildly alcoholic beverage which is sour. Palm wine is enjoyed by many people, especially men, during social gatherings.

Mushrooms

The trunk of the oil palm tree if felled and left on the ground for sufficiently long periods can be a fertile base for oil palm mushrooms.

Mushrooms are a good source of nutrients. They are low in calories, fat-free, cholesterol-free, and are very low in sodium. Besides, they boost the immune system and contain important nutrients that can be used in treating cancers.

Handicrafts and Clothing

Palm leaf material can be used to make hats that are worn extensively in Africa. It is common to see market women wearing some of these hats to keep the rays of the sun from getting into their eyes.

Local Building Materials

In rural Africa, leaves and branches of the oil palm tree are used as roofing materials. This kind of roof is called Thatch and it provides good and artistic cover for men and livestock.

Palm-kernel Oil

The oil palm tree produces two important kinds of oil, palm oil, and palm kernel oil. The kernel resides in the hard nut. The nut is first cracked, the kernel extracted and compressed to release a special kind of oil called palm kernel oil.

The dark-looking oil is used for medicinal purposes and is highly effective in the treatment of sores and wounds.

Palm Oil

In the introductory part of this article, I have given some vital information about the economics of palm oil as a product. Now, let’s deal with its science of production.

At peak seasons, the oil palm tree produces fruits that are harvested when ripe. The bright reddish oil that is extracted from the pulp of this fruit is called palm oil.

The process of extracting palm oil from the fruit is a rather simple one. However, modern technology is required to increase production, reduce production costs as well as improve the quality and durability of the final product.

Extraction and refining of palm oil

The fruits are first thoroughly washed and placed in a huge cylindrical steal oven.

Each bunch of fruit has about 200 date-size fruits tightly packed together.

The steam oven sterilizes the fruit and helps to loosen the fruits from the bunch.

The fruits are then separated from the bunch using a machine called a stripper.

The detached fruits are then sent to a huge blender, where the fleshy outer pulp is separated from the nut.

This fibrous outer flesh is then squeezed in a huge extruder, or press, to obtain crude palm oil.

After being cleaned and refined, the palm oil is ready to be shipped.

Advantages of palm oil over other cooking oils

Though the oil content in the oil palm fruit depends on the species, research has found that for every 100kg of fruit bunches, typically 22kg of palm oil and 1.6kg of palm kernel oil can be extracted.

Oil palms have a high oil yield (7200 liters per hectare per year) — making it relatively cheaper and a more common cooking ingredient in Africa and South East Asia.

Some Industries prefer refined palm oil to other oils because of its high oxidative stability and high levels of natural antioxidants.

See also: Export Bitter Kola From Nigeria and Make Tons Of Profit

Uses of palm oil

Palm oil has a wide array of uses and second only to soyabean oil. Besides its use as a cooking ingredient, refined palm oil (RPO) is used industrially in;

The production of soap, cosmetic, body cream, exfoliation cream, margarine, etc

Prevention of vitamin A deficiency, cancer, brain disease, and aging.

Release of stomach pain.

Production of drugs.

Treating malaria, high blood pressure, high cholesterol, dementia, etc

Weight loss and for increasing the body’s metabolism.

Water treatment

Production of dog and other domestic animal food.

Preservation of food

The process of extracting palm oil and palm kernel oil also produces by-products which are also of high economic value.

Palm oil by-products

Sludge: Used in making traditional soaps and fertilizer.
Palm Kernel: A very vital input in the animal feed industry.
Kernel Fiber: Used to make particle boards, pulp, and paper.
Trunk: Used to make furniture and feedstuff.
Other products like the shell, sludge, or fiber can be used as fuel to generate energy for mills.
Palm oil by-products with uses

Different areas of palm oil business you can invest in

There are three categories of business one can venture into the palm oil industry. You can choose to specialize in one, or two, or you can invest in all three if you have the capital.

Palm Tree Plantation

Growing oil palm plantations is capital and time-intensive. It takes usually between 5 to 10 years for the palm tree to grow to maturity and start producing fruits.

In this type of palm oil business, you will need to acquire a large expanse of land. Considering the number of years and the problems usually associated with land ownership, renting of land isn’t a viable option.

The soil should also be tested by soil experts to ascertain if it is appropriate for the species of palm tree you want to plant.

Next, you would have to source for improved quality seedlings. You would need expert advice on this. Some species grow faster but take a longer time to start producing fruit. Others are drought resistant and dwarfish.

A seedling presently costs between 150 to 300 naira depending on the type. Ensure also that you give a spacing of at least 8 to 9 meters between plants.

Palm Oil Extracting and Refining

Setting up an oil extracting mill is also capital intensive but unlike the palm plantations, it doesn’t take a long time of up to five years.

You also don’t need a large expanse of land for this and the land can be acquired on rent.

All you need to do is install either locally fabricated or state of the art oil extracting machines.

You can also install two sets of mills, one for your personal branded oil and another for rent to people who want to process their palm kernel.

Note also that palm oil has a peak and off-peak season. The peak season is between January to May. So, you may not make so much money during the off-season which is around July to December.

See also: How To Start And Run A Profitable Cinema Business in Nigeria

Selling Of Palm Oil

This is the cheapest and easiest type of palm oil business and relatively the most profitable too. How much profit you make in this business depends on your marketing strategy, quality of the product, as well as the amount of capital you put in.

To get more profit from this business, you can buy in bulk during the peak season, store and resell during off-seasons. During this period, demand outweighs supply, and price naturally goes up.

Starting a palm oil business: Basic things you will need

First of all, you will need to decide specifically the micro-niche you want to concentrate on in the palm oil industry. This article has done justice to that in the opening chapters.

It’s only after you are sure of the type of business that suits you that you can begin in earnest in drawing out a business plan.
Nonetheless, for guidance’s sake, here are a few things you will need.

Capital

No matter the area of palm oil business you choose to invest in, you will surely need capital to start.

Capital here isn’t just referring to money but also other inputs like land, labor, maintenance costs, machinery, seedlings as well as social and market networks.

You need to factor all of the costs associated with inputs above in your business plan.

For instance, if you already have a parcel of land that perfectly fits your need — that’s one problem solved.

You can also cut labor costs by leveraging your skills — if you have any, and hiring different sets of craftsmen on a part-time basis to do the different stages of work.

Starting a palm oil business: a step by step guide

If you have read this article to this point, then you must have decided by now what category of the palm oil business that you want to venture into.

But before you begin drafting your business plan, you need to undergo a thorough feasibility study to understand the nature of the business you are venturing into.

Research and learn about your market, target customers, as well as the competitors you

Draft a business plan

Begin by drafting out a business plan to guide you through your transactions and record keeping.

Research more thoroughly to find out the market behavior, current prices, and how where to get a quality product at a cheaper cost.

Your business plan should contain all the details of your business in terms of costs, targets, future projections, as well as how to achieve them.

In writing your business plan, the following information should be included:

Executive Summary
Company Description
Team
SWOT Analysis
Financial Analysis
Market Analysis
Marketing Strategies
Competitive Analysis
Appendix
Information that should be included on your business plan

Register your palm oil business

The palm oil business involves dealing with customers far and near, locally, and even internationally.

To launch your business on a grand scale and establish a certain degree of trust with new customers, it is advised that you register your business from the go.

Registering your business comes with many other advantages. For instance, you can open a corporate account that customers can pay into.

To register your business with the CAC, think out a business name, and run a search to check if the name is still available on the CAC website.

You will need to provide personal identity information, a valid national ID card, bank details, and more to complete the registration.

Look for suppliers

If you are involved in the commerce of buying and selling palm oil, you’ll need to source for reliable supply contacts.

Doing a detailed feasibility study as explained in point one will furnish you with the right idea of where to source your product from.

Palm oil is produced in large quantities in Nigeria mainly in the rainforest and swampy regions.

You can limit your search to States like;

Cross-River
Rivers
Akwa-Ibom
Imo
Delta
Ondo
Abia
Bayelsa
Palm oil producing states

Ensure you test the quality and find out if it meets the quality standards and requirements of your target buyers.

Set up a warehouse

Recall that it’s best to purchase your palm oil at the peak-season and store for sale at the off-peak season. This means that the oil will be kept in store for a good number of months pending when the market forces are most favorable.

Ensure that your product is kept in a cool, dry, and well-aerated environment so that its chemical composure does not get altered during the period.

With the right storage conditions, the product can remain durable for months or even years.

Find a cheap and reliable means of transportation

Here is a tricky part of business especially in this part of the world with poorly developed transport infrastructure.

If you are not prudent enough, you can incur a landing cost as costly as the product itself. And this would significantly affect your profit.

Having your company vehicle might seem convenient, but you also need to consider certain factors like distance, fueling cost as well as safety on the highway.

The best approach is to ask your supplier to suggest the cheapest, safest and reliable means of transportation as they’ve been in the business way before you.

Look for buyers

Now that you have researched all you need to know about the palm oil business, it’s time to get into the business proper.

Though prior preliminary studies must have pointed out some possible buyers, you still need to devise a solid marketing strategy.

In fact, it is best to find a reliable market even before you start processing or sourcing for suppliers.

As stated in the introductory part of this article, palm oil has an array of uses. This infers that while looking for buyers, you should beyond just households.

Big industries also make use of large volumes of palm oil in their crude or refined from. Thanks to eCommerce. Finding a ready market has never been easier.

Using your social media pages, you can target and find local and international buyers from the comfort of your bedroom.

Furthermore, you can also set up an eCommerce site where people can order for your products, or create a niche blog that discusses solely the intricacies of the business.

Where to sell your crude or refined palm oil online

The palm oil industry is huge. Though some well-established companies are into the business of buying and selling of the product, the industry is still in need of big and even small investors.
Here are a few of them.

Phemson Nigeria Limited

Phemson is a Lagos company involved in the purchase of palm oil and the sale of palm oil processing equipment.

Planet Oil and Chemical Industries Ltd

This is another palm oil buying company located in Abia State. They buy palm kernel oil as well.

Sunny Oil Nigeria Ltd

This company is located at Mushin, Lagos. They also purchase palm oil products and palm kernel oil.

OM Oil Industries Ltd

OM is another palm oil buying company and is located in Ikeja, Lagos.

If you are looking for international buyers, Alibaba.com and Vconnect.com are two trusted international websites that connect suppliers and manufacturers with buyers.

See also: 10 Lucrative Agri-Business Opportunities For Techpreneurs

Summary

Palm oil production in Nigeria currently stands at 930,000 tonnes per year, significantly below the estimated consumption of 1.4 million tonnes.

A recent study states that an investment sum of N2 trillion needs to be sunk into the industry over the next two decades for the country to attain self-sufficiency in palm oil production.

That is to say that the industry is still open to new investors who are willing to venture into the business.

You can begin by buying and selling the product locally, or you can venture into the palm oil exporting business and start earning in hard currency.

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