How Lucrative is Palm Oil Production Business in Nigeria?

If you have a desire to invest in oil palm production business in Nigeria and have been wondering what are some of the important issues that you need to know before venturing into this business, the potential market size, profitability and growth potentials, I have taken out a little time to analyze the issues and present them to you in a concise manner. Take note, I write professional business plans that can make a real difference in your business plan funding request. So here goes.

Introduction

Most of us know in this part of the world know what Palm oil is. It is a very nutritious, mineral rich cooking oil that can also serve many other uses including production of soaps, production of other vegetable oils and can be processed into low grade locomotive diesel fuel.  The use of palm oil is not limited to the local Nigerian market. The demand goes as far as the United States and China, which makes exports another revenue stream for local producers.

Let’s get into some details of Palm Oil production business in Nigeria.

What is Palm Oil Production?

It is the extraction of crude palm oil from palm fruits which are harvested from palm trees. The crop is grown in tropical rain forest regions and takes 4 to 8 years to mature from time of planting - depending on varieties. It also has a productive lifespan of 30 to 50 years which makes it a long term investment. 

The oil produced from palm fruits is used for food and industrial purposes. Palm oil production is different from palm oil processing which is the conversion of extracted crude palm oil into other vegetable forms or extraction of palm kernel oil from palm nuts or processing of palm fruits into raw material forms for other products.

What is the demand for Palm Oil Produce in Nigeria?

The local market for palm oil alone is huge, so huge that we still import palm oil from Thailand and Malaysia to meet local demand. As it stood in 2020, more than 1 million metric tonnes of palm oil was demanded by the local market of which only 90% could be met by local producers. This means we imported 10% of the palm oil consumed locally. While this is good news for local producers – because they can always find ready buyers - it is not necessarily good news for the consumers. There are more lucrative options available for local producers intending on exporting to China and United States which pay more per ton for palm oil but you also have to worry about finding buyers and meeting the exports requirements.

What are the running costs of Palm Oil Production in Nigeria?

If you are into the cultivation and harvesting of oil palm production, your running costs would be typical of most plantation farming businesses in Nigeria. Your costs would include; labour, fertilizer, pest control, security among other expenses. At harvest time, distribution and transportation take up huge chunk of the revenue achieved from selling to off-takers and exporters. The running cost is between 65 and 80% which leaves us with a profit margin of 20 to 35% depending on location and other factors.

What is the risk level involved in Palm Oil Production?

The risk is relatively low from the extraction of crude oil. Beside pests and diseases, the other threat is theft. All these threats are manageable to large extents. But then the even bigger threats – the ones from smugglers and unscrupulous dealers. There are people who would adulterate crude palm oil with harmful chemicals to maximize sales while not caring about the harmful effects their wickedness can have on the consumers. The smugglers bring in low quality crude oil from overseas to also sell to the local market. Both threats can affect market penetration and cause negative price wars, which is not good for business.

How much competition is there in Palm Oil Production?

This is a highly competitive market. There are so many dealers and producers involved that it is impossible to see who your real competitors are – if you are operating on a small or medium scale. On a large scale, you can easily crush the smaller competitors since you can sell at a lower price is still make huge profits. Big players like Okumo Oil, Presco and PZ Cussons own huge plantation farms although they don’t resell to consumer markets. The real secret to competing well in this market is to specialize by target regions and sell at lowest price possible for profit.

What are the benefits of Oil Palm Plantation Farming?

Being that plantation farming is a long term investment it is a ready source of passive income. Meaning you can go to sleep while your plantation and oil production mill (if you combine both) generates revenue on the long run. It is more lucrative to process crude palm oil into end products (as much as 60% ROI in one year) but it requires expertise and heavy investment. Secondly, the demand for crude palm oil is year round although prices fluctuate from low between February and June to high between July and December. That means there is always room for brisk business. Thirdly, the value of the plantation farm appreciates over time along with the price of palm oil fruits. That means good cash flow and capital appreciation wrapped up in one investment. Fourthly it is a stable investment as it isn’t very volatile to drastic economic or social changes.

What level of Production can maximize profits and minimize costs?

This is a highly technical question and the answer to this is – it depends. But if you have specific questions on this and need a concrete answer on request, send me an email: paulonwueme@gmail.com for details.

How quickly can I recoup my Investment in Oil Palm Production?

This is a long term investment so don’t expect to start making back your money within the first 7 years. You should be prepared to wait up to 15 years – if you are doing large scale plantation farming and production or between 7 and 12 years for medium scale. The good thing is that it is very profitable on the long run so that for decades you will continue to make money long after you have recovered your investments.

What is the startup cost like?

If you are investing in both oil palm plantation and processing, then you should be targeting a minimum of 20 million naira investment. The land for medium scale business shouldn’t be less than 10 hectares. If you want to go into only processing, the land and factory setup plus machinery, vehicles and equipment could be in the region of 20 to 40 million naira depending on daily production levels. 

Paul Onwueme is a professional Business Plan writer since February 2014, has achieved respectable results with his business plan writing service with several of his clients securing funding and leaving positive feedback about his writing service. You can connect with him via phone: 0803 206 4106 or email: paulonwueme@gmail.com