Introduction to Soybean Oil and Soybean Oil Production Business

Soybean oil is a popular type of cooking oil derived from soybeans. It is known for its health benefits due to its low cholesterol and high polyunsaturated fat content. In Nigeria, soybean oil is widely used for cooking, frying, baking, and even industrial food production. As the demand for healthy cooking oils increases, the production of soybean oil presents a lucrative business opportunity for entrepreneurs.

Starting a small-scale soybean oil production business in Nigeria is relatively simple and profitable, as the raw material—soybean—is abundantly grown in the country. This business offers high returns on investment due to its versatile by-products, such as soybean cake, which is widely used in the production of animal feed.

Industry Analysis of Cooking Oil Production Business

Local Demand

Nigeria’s population of over 200 million people, combined with a growing awareness of healthy food options, has driven the demand for soybean oil and other cooking oils. Nigeria consumes over 1 million tons of cooking oil annually, yet local production still falls short by approximately 300,000 tons per year. This shortfall creates a significant opportunity for local producers to fill the gap and meet domestic demand.

With a government ban on the importation of cooking oil to encourage local production, small and medium-sized producers are presented with a great opportunity to capitalize on this growing market. Soybean oil production has a wide consumer base across all socio-economic classes, and it is a key ingredient in both household cooking and food processing industries.

Export Opportunities

There are also growing export opportunities for Nigerian cooking oil producers. Countries in Africa, the Middle East, and Asia are major importers of edible oils. With proper quality control, branding, and adherence to international standards, Nigerian-produced soybean oil can be exported to these markets, offering additional revenue streams for local producers.

Step-by-Step Guide to Setting Up a Small-Scale Cooking Oil Production Business

1. Conduct Market Research

Before starting your soybean oil production business, conduct comprehensive market research to understand the local demand, competition, and pricing trends. Identify key buyers, such as retailers, food processing companies, and individual households. This research will inform your business model, pricing strategy, and marketing approach.

2. Develop a Business Plan

A detailed business plan is essential to outline your goals, target market, production capacity, and financial projections. Your business plan should cover:

• Target market: Local consumers, food industries, and potential export markets.
• Production capacity: How much soybean oil you plan to produce daily or monthly.
• Capital requirements: Initial costs, including equipment, factory setup, and raw materials.
• Marketing strategy: How you will promote and distribute your products.

This plan will be vital for securing funding from investors or financial institutions.

3. Secure Funding

The estimated startup cost for a small-scale cooking oil production business in Nigeria is ₦25.4 million​. This includes machinery, factory rent, installation, and working capital. To fund the business, consider applying for bank loans, seeking investment partners, or leveraging government grants that support local manufacturing.

4. Choose a Suitable Location

The location of your production facility is critical to your operational efficiency. Choose a location that is close to soybean-producing regions like Benue, Niger, Kaduna, and Oyo, as this will reduce transportation costs and ensure a consistent supply of raw materials. The factory should also have access to essential infrastructure, such as electricity and water, to support production activities.

5. Procure Machinery and Equipment

The key machinery needed for a small-scale soybean oil production business includes:

• Seed Toaster: Heats the soybean seeds to excite the oil content.
• Oil Expeller: Extracts the oil from the heated seeds.
• Filter Press: Removes impurities from the crude soybean oil.
• Oil Refiner: Refines the oil to make it suitable for cooking.
• Automatic Filling Machine (optional): For packaging the oil into containers.
• Weighing Scale: For weighing products.
• Sealing Machine: For sealing packaged products​.

6. Source Raw Materials

The primary raw material for soybean oil production is soybeans, which are abundantly available in Nigeria. Other materials include caustic soda, bleaching earth, water, vitamin supplements, and packaging materials. Establish relationships with reliable suppliers to ensure a steady supply of high-quality soybeans.

7. Register Your Business and Obtain Licenses

To operate legally, register your business with the Corporate Affairs Commission (CAC) and obtain the necessary licenses from the National Agency for Food and Drug Administration and Control (NAFDAC). You may also need to comply with regulations from the Standards Organisation of Nigeria (SON) and local authorities.

8. Implement the Production Process

Here’s an overview of the production process for soybean oil:

1. Toasting: The soybean seeds are toasted using a seed toasting machine to excite the oil molecules and improve extraction efficiency.
2. Oil Expelling: The toasted seeds are pressed using an oil expeller machine, which extracts crude soybean oil. The by-product, known as soybean cake, is collected and can be sold to animal feed producers.
3. Filtering: The crude oil is passed through a filter press to remove impurities, including cake residue.
4. Refining: The filtered oil is refined using an oil refiner. Chemicals like caustic soda and bleaching earth are added during this stage to achieve the desired quality and appearance. Vitamins are also added to enhance the nutritional value of the oil.
5. Packaging: The final product is packaged into containers using a filling machine, then sealed and labeled​.

9. Develop a Marketing Strategy

Your marketing strategy should focus on creating awareness and reaching potential buyers. Key approaches include:

• Local Distribution: Partner with retailers, supermarkets, and wholesalers to distribute your soybean oil.
• Branding: Create a unique brand with attractive packaging that highlights the health benefits of soybean oil.
• Export Strategy: Work with export agencies to access international markets, especially in countries that import edible oils.
• Digital Marketing: Use social media platforms and e-commerce websites to promote your product and reach a broader audience.

Profitability of the Business

The profitability of soybean oil production depends on factors like raw material costs, production efficiency, and market prices. As of the time of writing, 1 ton of soybeans costs ₦350,000, and from this, you can obtain approximately 170 liters of oil and 800 kg of soybean cake.

• Revenue: With a factory price of ₦900 per liter of oil and ₦300 per kilogram of soybean cake, you can generate a total revenue of ₦393,000 from processing 1 ton of soybeans.
• Gross Profit: After subtracting the cost of raw materials, your gross profit from processing 1 ton of soybeans is ₦51,000.
• Net Profit: Assuming 20% of profits go toward operating expenses, the net profit per ton is ₦40,800​.

If your facility processes 4 tons of soybeans per day, you could earn a daily profit of ₦163,200, translating to ₦2,040,000 per month, assuming the factory operates at 50% capacity for 25 days.

Key Profitability Factors:

• Raw Material Costs: Sourcing soybeans during harvest season can reduce production costs.
• Production Efficiency: Improving machinery and minimizing waste can boost profits.
• Market Expansion: Exporting soybean oil and by-products can significantly increase revenue.

Note that all figures provided in this article are only valid at the initial time of conducting this research. Kindly get updated information as per current market realities.

Conclusion

Starting a small-scale cooking oil production business in Nigeria is a profitable venture with growing demand both locally and internationally. By following the outlined steps and focusing on quality control, efficiency, and market expansion, entrepreneurs can build a successful business in the cooking oil industry.

Do you need more detailed information about cooking oil production business? Purchase our Feasibility Report for Cooking (Soya) Oil Production today at a discounted price of ₦20,000! This offer is limited, and the price will soon return to ₦100,000 once we reach our target. The feasibility report provides detailed insights into market analysis, financial projections, profitability insights, and step-by-step investment requirements to help you understand or launch your business with confidence.
Get the report here