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Palm Oil Processing Business Plan

1 INTRODUCTION

Palm oil has been an important ingredient in the diet of many Nigerians. Palm oil is the world’s largest source of edible oil, accounting for 38.5 million tonnes or 25% of the global edible oil and fat production (MPOC, 2007). Palm oil is a product extracted from the fleshy mesocarp of the palm fruit (Elaeis guineensis). The global demand for palm oil is growing thus, the crop cultivation serves as a means of livelihood for many rural families, and indeed it is in the farming culture of millions of people in the country. Hence, oil palm is often referred to as a crop of multiple values, which underscores its economic importance. The demands for domestic and industrial application of palm oil have continued to increase. It is estimated that for every Nigerian household of five, about two liters of palm oil are consumed weekly for cooking. However, palm oil is an essential multipurpose raw material for both food and non-food industries. Palm oil is used in the manufacturing of margarine, soap candle, base for lipstick, waxes and polish bases in a condense form, confectionary plating, lubricant, biodiesel, fat spread, ice cream, coffee whiteners, whipping creams, fatty acids free formulation, palm based cheese, micro-encapsulated, filled milk, mayonnaise and sealed dressings, red oil/olefin.

 

Before 1965, Nigeria is the world’s leading producer and exporter of palm oil, and has since 1974 ceased to contribute to the export trade in the commodity, largely due to increased domestic emand/consumption that have not kept pace with the production. During the past decade, Nigeria has become a net importer of palm oil. While in the early 1960’s, Nigeria’s palm oil production accounted for 43% of the world’s

production, currently, the country accounts for about 1.7% of the global palm oil production. Also, Nigeria is now ranked fifth in the global crude palm oil production in the world an enterprise that Nigeria once

dominated. Vogel (2002) reports that Nigeria is now an importer, and it is possible that the size of this demand maybe currently supplied by foreign imports. In 2009, some Nigeria citizens are mounting pressure on the federal government to lift the 35% tariff on crude palm oil importation. Presently, cheap crude palm oil is being imported from Malaysia and Indonesia. Hartley (1988) reports that Nigeria lost her foremost place in oil export to Zaire and regained it only temporarily in 1964 – 1965. Nigeria lost to Malaysia and Indonesia, as the largest oil palm producer in the world today because of her poor commitment to oil palm production.

 

The drop in ranking is caused by the neglect of agriculture sector for petroleum products. There is a serious need for the encouragement of small-scale oil palm production in Nigeria to increase the domestic demand of palm oil since it has the ability of creating jobs for the teaming unemployed in the country.

Commercial large-scale oil palm plantation farming is a relatively new phenomenon in West African where oil palm cultivation is basically subsistent and small-scale covering less than 7.5 hectares (FAO, 2005). In Nigeria, 80% of production comes from dispersed smallholders who harvest semi-wild plants and use manual processing techniques. According to a survey, several million smallholders are spread over an estimated area of 1.67 million hectares in the southern part of the country. Among the small- scale producers, traditional or semi-mechanized methods are used for oil extraction from the fresh fruit

bunch. In addition, during processing, outdated equipment is mostly used. This method of oil palm processing is arduous, time consuming and oil yield is usually low. Often, about 25% – 75% of potential palm oil is lost during processing. Elevated cost of procuring equipment is a serious problem in Nigeria. High equipment costs have discouraged intending processors from establishing and investing in oil palm venture. Consequently, significant proportion of the processors resort to hiring of processing equipment and this had resulted to delay in processing of the palm fruits. Oil palm cultivation originated in West Africa. Some 5,000 years ago, it was said to have been domesticated in Nigeria and production was for subsistence within the region. Currently, Nigeria oil palm sector is under reactivation after it collapsed during the discovery of crude oil. The other factors that led to the decline of Nigeria oil palm industry include civil war (1967 – 1970), lack of modern farm mechanization, over dependency on

smallholder/traditional processors, land tenure problem, inadequate infrastructure, poor funding, campaign by environmentalist for environmental protection etc. The stagnation in the oil palm

sector in Nigeria is influenced by the overall agricultural policies. Also because of the increasing demand of oil palm products resulting from an increase in population and income growth, relative to the low productivity from the oil palm sector, Nigeria has become a net importer of palm oil. According to United State Department of Agriculture, the crude palm oil production in Nigeria is 920,000 metric tonnes (MT) (2012), which is far below 1,315 MMT domestic demand in 2012, within the period a deficit of 470,000 were imported the same year to supplement the domestic production. However, there is a report that land is the major factor limiting oil palm cultivation. Their report recognized that majority of the farmers in Nigeria (81%) are confronted with land problem, 34.2% with fund problem while 53.2% complained of inadequate information and cultivation knowledge about oil palm. The way forward towards palm oil self sufficiency in Nigeria was suggested to be thus; planting materials should be improved and government should support the processors with funds. So for Nigeria to compete with countries like Malaysia, Indonesia, Columbia and Thailand, the country must return to agriculture.

In assessing the profitability and economic stability of a business like smallholder palm oil processing, a

feasibility study needs to be considered. A feasibility study helps identify the long term basis, financial implications of the oil palm enterprise through analysis. Feasibility study determines whether the business plan has the necessary resources for it to be practicable so that the entrepreneur will not invest more to correct flaws, remove limitations than to make profit. A feasibility study of oil palm processing brings to knowledge the possibilities, opportunities that abound in oil palm processing. Oil palm processing requires economic, technological/operational and financial feasibility. The economic feasibility studies of oil smallholder oil palm processing could be geared to employment generation and use to solve the current unemployment situation currently demoralizing Nigeria in the recent years. The operational feasibility shows that no special skill is required before venturing into smallholder oil palm processing. On the other hand, the financial feasibility shows that profit is the key gauge of feasibility of any business. In oil palm economics, profitability determinants model such as Gross Margin (GR), Benefit-Cost Ratio (BCR) and Expense Structure Ratio (ESR) level is determined by cost of palm fruits, cost of hiring/purchase of equipment, transportation of the palm bunches, availability of labor, price of

palm oil among others (Ekine and Onu, 2008). This model level determinant is essential for the continuity of the smallholder oil palm processing enterprise. Therefore, this study investigates the feasibility studies of small-scale palm oil production in Nigeria.

About the author

Sandra Chinedu

Chinedu Sandra is an Entrepreneur within the I.C.T space and loves blogging. She is on the Honour list of GEM, a World Bank Project for start-ups in Africa.

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