How to start palm oil business in Nigeria (2022)
Introduction Palm Oil Business in Nigeria
What is Palm Oil?
Palm oil otherwise known as red oil is an edible oil derived from the fruit of palm trees and quite reddish in colour. It is a native oil grown majorly in the tropics and used primarily for cooking purposes. It is semi solid at room temperature. The the scientific name of palm oil is Elaeis guineensis.
Palm oil along with palm kernel is gotten after the processing of palm fruits. And palm fruits is one of the direct products of palm tree.
This article will help you learn all you need to know about how to start and run a successful palm oil business in Nigeria. Additionally, it will also cover the 3 different stages or phases of the palm oil business. This knowledge will enable you choose your preferred area of investment. But your choice will depend on two factors:
- Your start-up capital.
- Your intended investment duration (long or short term investment)
Why Palm Oil Business is Highly Needed in Nigeria
Below are interesting facts about palm oil business and why more people need to venture into it in 2022:
- According to a report by the Federal Ministry of Agriculture, Nigeria spends $500 million annually on the importation of palm oil
- Nigeria is the largest consumer of palm oil in Africa
- Nigeria’s current local requirement for palm oil annually is about three million metric tonnes
- Nigeria’s current palm oil production capacity is about 1.02 metric tonnes annually
- According to Worldatlas, Nigeria is the 5th largest producer of palm oil in the world – it used to be second
- Over 80% of the total local production is by small-scale farm holders or local farmers
- Established plantations account for less than 20% of the total local production in Nigeria
- Though Indonesia is the world largest producer of palm oil but Nigeria’s import is from Malaysia – the 2nd largest producer
- The big one – Indonesia last week announced a ban on the exportation of palm oil – huge opportunity for Nigeria
- For the past 8 consecutive years Nigeria consumption of palm oil has always been higher than local production
About 80% of the total palm oil consumption in Nigeria are for industrial use. Only about 20% are for household use a.k.a. cooking.
Uses of Pal Oil
Palm oil has a wide variety of use. But broadly speaking the uses of palm oil can be classified into 2 major categories:
- Industrial use
- Household use
Industrial Uses
It is an irony of sort and a case of blatant ignorance that there are people who believe the usefulness of palm oil is in cooking food alone. But that is not correct. In fact, over 80% of the palm oil consumption in Nigeria is for industrial application. While just about 20% is for household use. Below are the major industrial uses of palm oil:
- Drug production for the treatment of malaria, high blood pressure, high cholesterol, dementia, etc
- As fluids for drilling
- As water treatment chemical
- Production of canned foods such as sardine.
- Body cream production, exfoliation cream
- Production of dog and other domestic animal food.
- Production of soap
- Release of stomach pain
- Production of margarine
- For baking bread
Household Uses
Though palm oil is widely used for several industrial application, that is not to say that it has no domestic use. Below are some important uses of palm oil at home:
- For cooking different types of meals like egusi soup, vegetable soup, beans etc
- For weight loss programme and for increasing the body’s metabolism
- Preservation of food, both raw and cooked
- Prevention of vitamin A deficiency, cancer, brain disease, and aging
Phases of Palm Oil Business in Nigeria
Broadly speaking there are 3 different areas, phases or stages one can venture into in the palm oil business. Below are the 3 major areas:
- Palm tree plantation
- Palm Oil Processing
- Sales of palm oil (wholesale and retail)
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Phase One: Palm Tree Plantation
This is the first phase of investment in palm oil value chain. This stage is not for people who are looking for quick returns. But the ROI is quite high. So if you are open to long term investment I will encourage you to start from this phase. But if you prefer to start earning immediately then this may not be for you. This involves planting the palm tree seedlings and nurturing it to the stage of fruiting.
Important Points to Note About Phase One
It is important to note the following important points in venturing into palm tree plantation:
- It takes 3 to 4 years before a palm tree will start fruiting
- A palm tree has a life spam of 40 to 50 years
- A hectare of land can take approximately 145 to 150 stands of palm tree
- A seedling of the best specie of palm tree in Nigeria goes for between N800 to N1,500
- The cost of developing a hectare of oil palm is about 2 to 3 million naira
- The standard spacing between the seedlings is 9 meter by 9 meter
Advantages of Starting Palm Oil Business from Phase One
It gives a maximum return on investment since you are in charge of the whole process
The investment is one off but the returns can run for 4 to 5 decades
It is not labour intensive as compared to other farm businesses like poultry or fish farming
Palm tree is not called cash crop for nothing – everything about a palm tree is a cash cow
It can bring about partnership with United Nation in line with SDGs Goal #15 which is on reforestation
You can attract easy funding from government as they seek to increase local palm oil production
Phase Two: Palm Oil Processing
This phase involves setting up a palm oil mill where the proceeds from the palm tree (in phase one) can be processed into different products. Some of the products from the palm oil mill are palm kernel, chaffs and of course palm oil. It is semi capital intensive but yields almost immediately.
With a milling machine you can use it to process for yourself or commercialize it. By commercializing it other people that are into palm oil production will bring their palm fruits for you to process for them. In fact, you can make as much money from this as you make from selling your own palm oil. Actually, there are people that have that as their own business and they are making it.
To be able to start this you will need to install the necessary machines which can be fabricated locally. Should you need my recommendation to connect you with local manufacturers of the milling machine reach me here.
But it is important for you to note that their are peak periods for the harvest of palm fruits. And that is usually from January to May. This does not however mean that there won’t be patronage in the other months of the year. Just that it will not be as much as during the peak period.
Phase Three: Sales of Palm Oil (Wholesale and Retail)
This involves the buying of palm oil in bulk from local farmers or from the mills and reselling either to wholesalers or to final consumers. The key to making good profit in this phase is in twofold:
- Smart sourcing – you need to know where to locate the local farmers that sell at very reduced price
- Quick access to buyers in urban areas for quick turn around
However, there are some business owners that prefer to buy the palm oil and store them for months. They will then bring them out and sell during off season when the price has gone up in the market.
States in Nigeria where you can source palm oil from
- Ebonyi State
- Delta State
- Akwa-Ibom State
- Cross-River State
- Bayelsa State
- Imo State
- Rivers State
- Ondo State
- Abia State
How Much Do You Need to Start Palm Oil Business?
How much you need to start will depend on the phase of the business you choose. So for each of the phase you have:
Phase one will require you to have up to three million naira to operate on a full hectare of land. But you can still start with a plot of land which can take as much as 12 stands of the palm seedling. And it will cost you about 300,000 naira only to start.
Phase two will require you to invest between 500,000 naira to one million naira for a small scale mill.
While phase three might be easy to start with as low as 15,000 naira for a 25 liter gallon. Of course you can buy as many as your budget can accommodate.
How to Make Money from Palm Oil Business
There are many ways to make money from palm oil business in Nigeria. Below are some of the ways:
- Sale of palm fruits without processing
- Production and sell of brooms from the palm leafs
- Production and sell of local baskets from the palm fronts
- Sale of processed palm oil
- Sale of palm kernel
Is Palm Oil Business Profitable?
The answer to this is quite obvious. Palm oil business in Nigeria is a very profitable one. Take for example, someone that decides to invest in Phase A, it will cost him at most 4 million naira to nurture and fully develop a hectare of palm oil farm to the point of fruiting. And remember that this occurs after 3 to 4 years. With a litre of palm oil now selling at 900 naira, he can decide to sell for 600 naira to bulk buyers. Please be informed that the production capacity of one hectare is 12 tonnes (that is 12,000 liters) yearly.
That means the person stands to make a total of (600 * 12,000) = 7.2 million naira in the first year of harvest. Without any extra investment save for regular weeding and application of fertilizers the farmer can make similar returns for the next 40 years. Isn’t that mind blowing? Note also that, the calculation above is just for palm oil alone. We are yet to include what he will make from the palm kernel and other products from the palm tree – remember that nothing from a palm tree is ever wasted.
Steps to Starting a Palm Oil Business in Nigeria
Decide on the phase of the palm oil business you wish to venture into
We have outlined above that there are three phases of palm oil business one can venture into in Nigeria. So in order to start palm oil business in Nigeria you need to first decide on which of the three phases you prefer. Once again your choice will depend to a large extent on how much you have, and whether you are looking at long or short term reward.
Prepare your business plan
Though there are many people that have started their businesses without a business plan today. But I will not advice you to do so. It is extremely important you sit down and prepare a proper business plan (count the post) before you venture into any business. And palm oil business is no exception. If you don’t know how to prepare a standard business plan for yourself, you can get an expert, pay and have them do it for you. Of course you can also book a session with one of our business plan consultants here.
Whether you are preparing the business plan by yourself or you wish to get someone to do it for you insist that it must contain the following sections:
- Executive Summary
- Industry Overview
- Company Description
- SWOT Analysis
- Market Analysis
- Financial Analysis
- Marketing Strategies
- Competitive Analysis
Planting of the seedlings (if you choose to start from phase one)
Before you plant you must carefully taste the land to be sure that is is suitable for palm tree business. Then you clear the grasses before planting.
Set up the processing mill (if you are starting from phase one or two)
If you plan to have your own mill, whether for personal use you need to procure and install the machine. If you are not available to operate it yourself then you hire and train an operator. But please have a system to monitor the operation.
Register your business with CAC (if you run this on a large scale)
Business registration with CAC is not compulsory in Nigeria. There are many people operating without been properly registered. However there are many advantages of registering with CAC. Some of them are:
- It gives your business a legal identity
- It makes people trust you more – note that some customers or intending investors can run a background check on your business without your knowledge
- There are jobs and contracts you can never get if your business is not registered with CAC
- It is impossible to do business with government without a registered business company
- It will help you secure grants, loans and other funding from government bodies and foreign missions
Part of my responsibility here is to help small business owners structure their business in the best possible way so as to be positioned for any available opportunities. For that reason, if you need my team to connect you with professional CAC Agents that will help you will fast and efficient CAC registration contact us here.
Get a warehouse or storage space for storing the processed palm oil
Please it is important you store your palm oil in a cool and dry place. Don’t leave them on ordinary cement floor. Try and put something like carton or planks on the floor before keeping them. Equally consider the security of a place before choosing it as a warehouse. This is to avoid losing your hard earned money.
Arrange a good means of transportation if you don’t have a supply vehicle
Ideally you should have a vehicle for running your supply for you especially if you operate at a large scale. But in a situation where such is not available, you don’t need to panic, Simply arrange with a reliable transporter that you call each time the need arises.
Scout for buyers including means of export
It is one thing to produce 12 tonnes of palm oil every year – congratulations. But it will not make any sense if you can’t sell them. So, it is important you start early enough to scout of means of selling off your products accordingly. You can also make enquiries on the processes of exportation.
Challenges in Palm Oil Business in Nigeria
The challenges associated with palm oil business in Nigeria can be classified into 3:
- UpStream
- Mid-Stream
- DownStream
UpStream
By upstream we are referring to all the activities around phase one of palm oil business. This has to do with everything done from the planting point to the point of harvesting. Sometimes it stretches to the mills. But it has to do with the crude palm oil before it is processed. And here are the common challenges experienced in the upstream:
- Low quality seedlings.
- High cost of rental charges on land for plantation.
- High interest rate on borrowed funds due to the long-term capital outlay for investment in plantations notwithstanding the 9% interest rate offered by the CBN.
- Farm management: lack of expertise.
- Farming techniques: crude and outdated farming techniques
- Poor/inadequate storage facilities and post harvest losses
- Road transportation issues due to poor road networks/infrastructure
Mid-Stream
This has to do with the process of processing and refining. Just an equivalent of phase two as discussed above. And the challenges around midstream are:
- Raw materials i.e. low quality input from the upstream segment
- Epileptic power supply affecting the mill operations
- Dilapidated infrastructure e.g. poor road networks
- Inadequate funding
- Improper processing facilities/substandard mills.
DownStream
- Smuggling
- Counterfeit products
Palm Oil Processing Companies in Nigeria
Below are the leading palm oil processing companies in Nigeria:
Okomu Oil Palm Company PLC
Okomu is arguably the biggest palm oil company in Nigeria. It was initially established by the Federal Government of Nigeria in Edo State in 1976 before converting to a Plc in 1990. The company has about 19,061 hectares of land planted with palm trees. Apart from palm oil products they also produce rubber.
Siat Nigeria Limited
SIAT Nigeria Limited is a fully integrated agro-industrial establishment with oil palm plantations, palm oil mill, and palm kernel crushing plant. The company specializes in the cultivation of oil palm products.
SIAT Nigeria Limited is one of the market leaders in palm oil products in Nigeria.
Presco Plc
Presco is a fully-integrated agro-industrial establishment with oil palm plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining and fractionation plant.
The company specializes in the cultivation of oil palm and in the extraction, refining and fractionation of crude palm oil into finished products. Presco should be the second market leader after Okomu
EFB Indutries Limited
EFB INDUSTRIES LIMITED located in Ohafia, Abia State, Nigeria. It was incorporated on 15th day of August, 2012 to engage in the business of manufacturing and processing of all aspects of palm oil products, to develop and own palm oil plantations and estates and to manufacture all food and non-food products of palm oil industry.
Okitipupa Oil Palm Plc
Okitipupa Oil Palm Plc is located in okitipupa in Ondo State, South West Nigeria. It was established to carry on the business of palm tree plantation developments, cultivators as well as growers of other related crops.
Companies into Bulk Buying of Palm Oil Products in Nigeria
PZ Cussons
Nigeria is PZ Cussons’ largest and most diverse single market, operating in Personal Care, Home Care, Food and Electricals. We have been operating in Nigeria for 120 years. Their major products include Morning Fresh Dish Wash, Cusson Baby Soap, Mamador Oil, Devon Kings Oil. They also produce Premier Cool, rubb,venus, zip detergent etc. They are one of the biggest buyer of palm oil in Nigeria and has recently gone into backward integration by starting their own palm plantation.
Dufil Prima (manufacturers of Indomie noodles and Power oil)
They are into a wide range of products including power oil, indomie noodles, minimie noodles, minimie chinchin. They also produce power pasta and pure semolina.
Phemson Nigeria Limited
A Lagos company involved in the purchase of palm oil and palm oil processing equipment
Planet Oil and Chemical Industries Ltd
This is another palm oil buying company located in Abia State. They also 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 oi
OM Oil Industries Ltd
Another palm oil buying company located in Ikeja, Lagos.
How to Market Your Palm Oil Products with Ease
Here are quick tips on how to market your palm oil with ease:
- Use social media
- Get distributors nationwide (if you are into large scale production)
- Supply to major industries that need it for manufacturing
- Join cooperatives
- Supply to hotels and restaurants
- Explore exportation options
Top 10 countries in the production of red oil
Below are the top 10 oil producing companies in the world with their production capacity (in 1,000 metric tonnes):
