A FEASIBILITY STUDY ON SMALL SCALE PALM OIL PROCESSING BUSINESS

ABSTRACT

Palm oil is a major food and non-food ingredient consumed by virtually everyone in Nigeria through the use of palm oil related products. This study investigates the feasibility of small-scale palm oil processing in Nigeria, using Elele, Rivers State as case study. Information was elicited through interviews and physical observations. Manual processing and screw hand press methods were adopted for palm oil extraction from fresh fruit bunch. Data were analyzed using descriptive statistics (mode, frequencies and corresponding percentages and gross margin model) and profitability techniques (i.e Gross ratio, Expense Structure Ratio, rate of return and Benefit-Cost Ratio). The findings show that the average cost of procuring equipment and its installations for a small-scale palm oil processing mill were estimated at N623,650.00. The gross margin return from this study was N44,000.00 while net return was N14,000.00. The gross ratio reveales that for every N1.00 return to the mill 68.00 kobo was spent on the production processes. The small-scale palm oil venture is dominated by elderly people from 50 years and above (30%).  About 34% and 32% of the processors have WASC and Primary School Leaving Certificates respectively as the educational qualification. About 50% of the processors have 16-20 years experience in oil palm processing.  The study concludes that small-scale oil palm processing is profitable and can also be a source of employment.

Keywords: feasibility, Nigeria, Palm oil, processing equipment, profitability, small scale palm oil processing.

TABLE OF CONTENTS

1.1       INTRODUCTION

2.0   MATERIALS AND METHODS

2.1 Field visit/survey

2.2 Data analysis 

3.0 RESULTS AND DISCUSSION

Table1: Cost (N) for the procurement of palm oil mill Equipment for small-scale processing

Table 2: Average cost of procurement/setting up of a small-scale palm oil processing mill

Table 3: Job descriptions in a small-scale palm oil mill and their wages

Table 4: Cost and returns in palm oil processing for 100 fresh fruit palm bunch

Table 5:  Profitability of Palm Oil Processing

Table 6: Social economics characteristics of smallholder palm oil processors in Nigeria

4.0  CONCLUSION

REFERENCES

1.1       INTRODUCTION

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 demand/consumption that have not kept pace with the production (Omoti, 2004). During the past decade, Nigeria has become a net importer of palm oil (Olagunju, 2008). 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 (Nnorom, 2012), 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 may be 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 (Nnorom, 2012). 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 (Teoh, 2002; Nnorom, 2012). 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 (Carrere, 2001; Olagunju, 2008). According to Carrere (2001) and Olagunju (2008), 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 (Omereji, 2005; Olagunju, 2008). 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 (Ekine and Onu, 2008). Elevated cost of procuring equipment is a serious problem in Nigeria (Orewa, 1998). 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 (Ekine and Onu, 2008). Oil palm cultivation originated in West Africa (Poku, 2002). Some 5,000 years ago, it was said to have been domesticated in Nigeria (Sridhar and Ade-Oluwa, 2009). 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. Also, Kei et al. (1997) highlights that the stagnation in the oil palm sector in Nigeria is influenced by the overall agricultural policies. They also observed in their study that 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, Soyebo et al. (2005) reports 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 authors also enumerated the way forward towards palm oil self sufficiency in Nigeria by suggesting that the planting materials should be improved and that 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 need 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 (Marino, 2012), so that the entrepreneur will not invest more to correct flaws, remove limitations (Lohrey, 2014) 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) (Olagunju, 2008) 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.

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