HOW TO START PALM OIL PRODUCTION BUSINESS

  1. Introduction

Palm oil is an edible vegetable oil that comes from the flesh of the fruit of oil palm trees, the scientific name is Elaeis guineensis. Palm Oil is a major food source for both domestic consumers for local dishes (80 percent of demand) as well as industrial consumers (20 percent), who require palm oil for various food and household items.

The by-product obtained from the production of palm oil is the palm kernel nuts. They can be further processed to get palm kernel oil and cake.

  1. Industry Analysis

The market for palm oil is national. Palm oil is consumed across all geo-political zones and socioeconomic classes. With a population of about 200 million people and an estimated national population growth of 2.56% per annum, an average economic growth rate of 2.5% per annum in the past ten (10) years, Nigeria has a large and growing market for soybean palm oil and its by-products.

The total consumption of palm oil in Nigeria was estimated to be 1.6 million metric tonnes in 2018, with production output at about 900,000MT. Consumption is expected to reach over two million metric tonnes in the next 10 years by 2020, with a potential supply gap of up to one million metric tonnes.

As the edible oil market has grown into a multi billion naira industry, so has the opportunity for small and medium oil mills/refineries to produce and supply products to the ever demanding and growing market.

  1. Raw Materials Requirement

The basic raw material for the production of palm oil is oil palm fruits obtained from fresh fruit bunch (FFB). Oil palm produces fruits in bunches known as fresh fruit bunch (FFB). An oil palm tree produces more than 8–12 bunches per year, each weighing up to 13 kg. A bunch contains about 800–1000 fruits, usually called oil palm fruits.

Nigeria is one of the top oil palm producing countries in Africa. Oil Palm is produced in large quantities in states such as Abia, Imo, Edo, Delta, Ondo, Cross Rivers and Akwa-Ibom, Osun, Ogun, Oyo, Ekiti, Abia, Anambra, Imo, Enugu, Ebonyi, Benue, Nasarawa, Kwara, Kogi, Plateau, and Taraba states, etc.

Other raw materials that will be needed in the palm oil production business are water and packaging materials.

  1. Machinery & Equipment Requirements

The major equipment needed in a small scale palm oil production plant are:complete set integrated palm oil production plant, automatic oil filling machine, Bag sewing machine and Weighing Scales.

EquipmentFunctionPicturePrice
Complete and Integrated Palm Oil production Plant.The production of palm oilN14,000,000
Automatic Oil Filling Machine
(This machine can be optional asmanual filling is possible)
Press the heated seeds and expel the oil content of the nuts via the oil exit chamber, while the cake is collected via the cake exit chamber.N7,000,000
Weighing ScaleFor weighing productsN100,000
Sealing MachineFor sealing by-products products in bags.N50,000

Notes: The above prices are applicable as at the time of writing this report.

  1. Production Process

Typically, when raw fresh fruit bunches comes into the mill, they go through the following steps:

  1. First, the palm fruits go through a process known as sterilizing.This process can be done by either roasting/smoking which is done after threshing process or by steaming/boiling which should be done before threshing process.
  1. Next, the palm fruits go through a process known as threshing, in which each piece of fruit is separated from the rest of the bunch.
  1. After threshing, the next step in palm oil production involves pressing the fruit to separate the oil from the skin and pulp. The oil is then diluted with water and filtered through a screen to help remove debris and impurities. The oil is washed/degummed with water at high temperature to make the oil more palatable.
  1. Finally, the oil is packaged in desired containers. The palm-kernel nuts obtained are also packaged in bags and sold as by-products.

F. Profitability

The profitability of palm oil production depends on the cost of raw materials, fresh palm fruits. There is no fixed cost for fresh palm fruits. The price fluctuates with season, demand and supply. As the price of fresh palm fruits changes, so also does the price of palm oil change.

  • As at the time of writing this report, the average cost of fresh palm fruits is N200,000 per ton. Depending on the quality of fresh palm fruits, an average of 250 litres of palm oil and 210Kg of palm kernel nuts is obtainable from processing 1 ton of fresh palm fruits. 
  • The average factory price for palm oil is eight hundred and fifty naira (N850) per litre while that of palm kernel is one hundred and forty naira (N140) per kilogram.

This implies that a revenue of (N900 X 250) + (N180 X 210) = N262,800 is obtainable from processing 1 ton of fresh palm fruits.

Gross Profit is calculated by subtracting the cost of production from the sales.

Gross Profit = N262,800 – N200,000 = N62,000

Assuming operating expenses (including cost of packaging) takes 20% of profits, profit realisable from processing 1 ton of fresh palm fruits will be thirty thousand four hundred naira (N49,440).

The proposed setup will have the capacity of processing 10 tons of fresh palm fruits per day.This will translate to a profit of N49,440 X 10 = N494,400 per day.

If the factory works for 25 days per month and at 50% of the installed capacity, this will translate to a profit of N6,180,000 per month.

G. Capital Requirements

The estimated total required capital for setting up a small scale palm oil production plant is put at twenty eight million, one hundred thousand naira (N28,100,000). This includes the cost of factory rent, machinery procurement and installation, staff training, and working capital. 

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