How to start palm oil business in Nigeria

Want to start a successful palm oil business in Nigeria? This article will present you with every information you need to get started, run the business, and succeed.

Food is an essential need in life and governments in the world cannot afford food shortages, as it could lead to crisis.

If you wish to start a profitable business in the agriculture sector in Nigeria, there is an opportunity in starting palm oil production. In Nigeria, it is popular called red oil, red palm oil, or simply palm oil.

The palm oil business is one of the lucrative businesses any entrepreneur can delve into and make huge profits. The youths of today want white-collar jobs in the oil and gas sector but fail to tap into the income potential in the agricultural sector.

Those who are wise to go into the palm oil business, always make crazy profits. The business opportunities for red palm oil production in Africa are quite impressive.

We’ve written about the top 50 business ideas in Nigeria anyone can consider starting now. You should check it out.

Palm oil makes up nearly 50 percent of edible oils consumed worldwide. Apart from being a popular ingredient in African food (especially soups, stews and pottage), palm oil has one of the most versatile uses of any plant product.

Palm Oil As a Commodity

Red palm oil is a natural oil extract from palm tree fruit. Palm oil is the native oil used in Nigeria mainly for cooking. 

It is reddish in color and can be thickened if stored in a cool place for a long time. It is lowly inflammable but when put on the fire to a boiling point, can be inflammable if in direct contact with naked fire.

It is often said that nothing goes into wastage in a palm tree, from the palm kernel to the leaf, the tree, the shaft from the kernel, and so on.

How to start palm oil business in nigeria

Using palm oil for cooking has greater health benefits over the vegetable oil as it is said to have a high concentration of vitamin E in the finest proportion.

Your body tends to get better health benefits as a result of the vitamin E present in the red palm oil rather than taking a commercial vitamin E capsule.

Palm oil is one of the commodities constantly in high demand in Nigeria. There is never a time it wouldn’t be a hot cake in the market.  

If you can get it in quantity during the time of surplus and store it for some months, you will sell at 100% profit. It is usually surplus around December to April and sells at the highest around July to September.

Although West Africa lies in the center of the world’s oil palm belt, it produces less than 5 percent of the palm oil consumed worldwide.

Indonesia and Malaysia have become the dominant powers in palm oil production and presently supply more than 70 percent of the palm oil consumed worldwide. It is followed by Thailand and Colombia with Nigeria in fifth place.

Why Should An Oil Palm Plantation Business Be Set Up?

Palm oil is a hugely versatile vegetable oil used in a variety of ways in different cultures, industries and markets

  1. Palm oil is generally used for cooking in many countries.
  2. Besides using palm oil for cooking, it is also used in making soda soap and toilet soap
  3. It is also medicinal and it is used as a pain relief for stomach upset. It contains vitamin A which is good for eyesight.
  4. In food companies,  it used as a substitute for fat in making condensed milk, coffee cream and Production of margarine.
  5. Water treatment chemical
  6. Used for making body cream and cosmetics
  7. Production of detergents, greases, lubricants and candles.
  8. Production of canned food such as sardine.
  9. Production of dog and other domestic animal food.
  10. Preservation of food, raw and cooked.
  11. Production of palm kernel oil, which is made from the same fruit.

All these amazing qualities make palm oil a highly sought-after commodity in homes, restaurants, and food processing industries.

Apart from local trade in palm oil, it is heavily sold on the international markets as CPO (Crude Palm Oil) and usually commands a high premium price given its vast capabilities and high demand from several industries.

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Steps to Start Palm Oil Business In Nigera

Palm oil business is very lucrative if done properly. The demand for palm oil is very high and there are consumers who are willing to buy.

Palm oil business is very profitable if handled well.  Since palm oil affects every part of our lives, old and young, rich and poor, the market for this essential commodity is booming.

If you decide to go into the palm oil business, hardly will you regret it since there is always a demand for it. There are basically three types of Palm Oil businesses you can venture into. They are:

  1. Bulk palm oil trader
  2. Setting up palm oil milling and processing plant
  3. Having palm tree plantation

You can begin with the first one and have plans for the other two.

That means as you are engaging in bulk purchase of palm oil, depending on your initial capital you can begin to draw out the business plans for having your mill and the palm plantation.

It takes time for the harvesting and setting up a mill to be ready, you can use the time to familiarize yourself with the palm oil market by being a bulk trader. Now let us discuss the three palm oil business opportunities.

  • Bulk palm oil trader

As a bulk trader, you will buy processed palm oil in large quantities and stock them for export or sale in the local market.

During harvest, usually between March and May of every year, the prices of palm oil reach very low levels due to the abundance of the product in the market.

However, during the off-peak (non-harvest) periods, when palm oil becomes scarce, the prices expectedly skyrocket.

This scarcity usually sets in between September and December and can see palm oil prices rise by as much as 100 percent.

This cycle of scarcity and abundance continues because of inadequate storage facilities to ensure an all-year-round supply of red palm oil to the market.

You will need to have a stocking program that allows you to buy from the market at very cheap prices during times of abundance and sell back to the market when scarcity sets in.

This strategy obviously requires storage space and may incur significant holding, handling and transportation costs.

Palm oil’s ability to retain its natural consistency, even at high temperatures, allows it to withstand long storage periods (usually up to one year). This period allows you enough time to gradually sell off the product and make good profits in the process.

Setting up palm oil milling and processing plant

This is another lucrative aspect of the palm oil business.

This is relatively capital intensive since it requires the installation of palm oil milling machines for the processing of the palm oil kernel seeds.  

You can decide to fabricate one locally or simply import one. Palm oil can be processed traditionally however it has been noticed that the traditional method of processing palm oil is one of the leading reasons for low palm oil production in Africa.

Due to the crude methods of squeezing out palm oil from the pulp of the palm fruit, a lot of oil still remains in the pulp and is lost through this ineffective and wasteful process.

With the advent of Modern mills, this has greatly reduced the wastages, stress and saves a lot of time.

Modern mills process harvested palm fruits into final grade palm oil with little or no waste and minimal use of human power.

Using machines, the process typically involves sterilizing and threshing the bunches to free the palm fruit, mashing the fruit, and pressing out the crude palm oil.

To succeed with this strategy, there are a couple of things you will need to watch out for:

Operating a mill is likely to require a lot of electric power. With high fuel prices and poor electricity supply in many parts of the country, this is likely to be the single most influential and challenging factor in determining the profitability of this venture.

Another important factor is the quality of palm fruits you buy from farmers. You should ensure that they are of the high yield variety (preferably Tenera). A failure in this area may lead to low palm oil production volumes and poor profits.

Other factors to consider before starting an oil mill are land acquisition where the mill will be set up, skilled labor to operate and maintain the machinery, quality control in processing the palm oil, and easy access to markets.

If you will like to have your palm tree plantation in the future, then your choice of location for your mill should be influenced by the type of soil that is good for the plantation. It is advisable that the farm be closer to the milling factory.

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The crude oil is further treated to purify and store for sales in both local and international markets. An investment in a milling plant can be a great source of income if it is located close enough to oil palm sources.

The two major ways to make money from this venture are:

Commercial Processing

This involves processing other people’s palm kernel seeds for money.

It is a lucrative business as the cost of getting a palm oil milling machine is expensive. It is a good business because you’ll make a huge ROI after a few months. 

You could charge a flat fee on a per kilogram or per hour basis. The value you offer to customers is a quick, easy and labour-free way to get their palm fruits milled and processed to palm oil.

The only expense you’ll have to pay is constant servicing of the milling machine.

During the palm oil season which is between January and May, customers are always available to processes their palm kernel seeds. But during the offseason, the business is fairly stable.

Direct processing

This involves the owner of the milling machine buying palm kernel seeds from different farmers in very large quantities and processing it in order to sell to end-users.

This strategy has a greater potential for huge profits because of the opportunity to buy palm fruits at low prices and sell the processed palm oil at a much higher price.

In this category of the palm oil business, you need to set up your milling machine in a location that is easily accessible to farmers and close to the target market.

Having Palm Tree Plantation

This aspect of palm oil business requires huge capital investment. It also needs a large area of land. However, the profit of this business is huge and you’ll make it big, once you’re able to acquire the land.

The reason is that the only raw material for the production of red palm oil is palm kernel. That means if you can have your own plantation, the cost of purchasing palm kernels will be out of it.

So you must decide on the size of the land and its location for easy access to production plants and markets. Also, you need to be sure the soil is good and fertile enough for the plantation.

The incubation period after the plantation of the palm trees can take between four years and eight years before harvesting. So as a farmer, you must be very patient.

And once the harvesting begins, it is a regular exercise since different palm trees will produce ripe palm oil seeds at different times and must be harvested.

If you have followed the steps in this article by starting as a bulk trader and move on to establish a palm oil mill, then by the time your palm tree plantation is redy for harvest you wouldn’t have a problem processing and marketing your palm oil.

You can also sell the palm oil kernel seeds to those who do the processing.

The capital requirement for this type of project runs into millions of naira.

The oil palm is one of the most useful trees that have been known. As mentioned earlier every part of the tree – of its fruit, its leaves, trunk, and its sap – is used for one thing or another.

While the palm fruits are processed into palm oil and palm kernel oil, palm fronds (leaves) are used for roofing homes in rural areas and in fields in most parts of Nigeria. The sap (palm wine) is a beverage refreshing taken in many parts of the world, and it is widely consumed in Nigeria.

Oil palm plantations involve merely the cultivation of palm oil. When it is time for the harvest, you can process the fruits to produce red palm oil. After the harvest and sale, you must wait until the next harvest season to sell again. This can continue for decades.

The main things you will need for your palm oil business in Nigeria are capital, land, and labor. Moreover, you need the right processing technique if you really want to stand out in the palm oil industry.

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Features that favor palm tree plantation

  1. An all-year-round hot weather. The oil palm grows well where it is hot all the year round. Hot temperatures allow the oil palm to grow many leaves and, as a result, produce more fruit. Higher temperatures also mean that the palm trees are less prone to disease attack.
  2. A lot of sunshine. Oil palms need a lot of sunshine to grow well. All year round sunshine helps the palms to produce large and well-ripened fruits which contain a lot of oil.
  3. Abundant rain. Oil palms are not likely to do very well in areas with water shortages. Plentiful rain is very good for the trees and allows them to grow a lot of leaves which lead to more clusters of fruit.
  4. Rich, deep, flat and permeable soil. The oil palm needs access to water and mineral salts deep in the soil to do well. If it does not have full and easy access to these essential nourishments, the yields (harvest) may be very poor. The soil must also be able to allow water to soak through (permeable) to ensure that the soil is always well drained. However, in the absence of adequate minerals in the soil, fertilizers can be used to supplement the existing supply.

Varieties of palm fruit

If you’re considering an oil palm plantation, growing the right variety of palm fruit will be most essential to the success of this business.

Note that the palm fruit consists of pulp the yellow part and the seed. Inside the shell of the seed is the kernel.

Also, the fruits of all oil palms are not the same size, the pulp not equally thick and the shell is not equally thick. The following are the examples of the varieties of palm fruit:

  1. Dura. A significant majority of the palm fruits in Africa are of the Dura variety. Dura palms have kernels with which is characterized by a thick shell and a small pulp.
  2. Pisifera. The palms have kernels with no shell
  3. Tenera. The palms have kernels with thin shell. The Tenera variety is every plantation owner’s favorite because it has a lot of pulp, a thin shell and a big kernel. Selected varieties like the Tenera ensure a much larger yield for every hectare cultivated.

Trading On Palm Oil

This is the category majority of investors in the palm oil business engage in because it is in the buying and selling you make quick money.

This business involves the buying of palm oil in large quantities, storing them for months, relatively in large quantity, and selling during the off-peak period, when the supply to the market has reduced.

During this period, the traders will bring out their stock for sale and make a reasonable amount of profit. From the background analysis, it is assumed you understand the different aspects of the business.

The steps you need to take before starting your palm oil business are as follows:

Market research

To understand the nature of the business, the volume of the business, who are the existing buyers and sellers of the product, where are they concentrated and which states you have the chief producers of palm oil, you need to carry out market research.

You also need to know your competitors and the existing price of palm oil before delving into the business.

You must also find out the prevailing prices of buying and selling and from which states you can obtain the palm oil cheaper and of the right quality.

Travel around the states and source from the various local markets and local palm oil processors.

Capital to be invested

After carrying out market research, the report you have made will point out the right amount of capital to start the business.

The capital will include working capital. This is the minimum amount of money required to buy palm oil for sale. 

It also includes the cost of purchasing the palm seed for plantation. Also, there will be a sufficient amount of cash for transporting the palm oil from where they are purchased to the warehouse.

Building Capital will be capital needed to rent or build a warehouse to store the already purchased palm oil. In the case of setting up a palm oil mill, the cost will be included here too.

Storage Capital will be the capital needed for the proper storage of palm oil. You need to invest in the security of your warehouse and also purchase jerry cans or kegs to store your palm oil.

Preservation

You need to know how to preserve palm oil. So, Storage space and means of storage must be arranged.

The storage space (warehouse) must be spacious, have security, access road, and be conducive for the storage of oil. Also, the kegs for storing the oil must be arranged.  You can rent a room for storage too.

Contact suppliers

You must find out where sellers (suppliers) of palm oil are and which state produces the best quality at reasonable prices.

You must compile a list of suppliers and make efforts to find out who they are, how reliable, the quality of oil they sell, the credit facility offered, and the possibility of establishing a long-term relationship with them.

Transportation

Decide on the mode of transportation of purchased palm oil.

There are so many commercial carriers available and you can approach many of them to compare transport fares, how reliable they are, security of goods on transit, and the ability of the carrier to maintain the condition of the oil carried from where they picked up to their destination.

If at all possible, buying your own vehicle for transporting palm oil is better for reliability.

Market your products

From the outset, it is important to contact the would-be retailers (buyers) of your products and intimate them that you are going to be a reliable supplier of palm oil during the season and off-season.

Compile their list and do get in touch with them occasionally since they are the reason you are in business.

If you’re planning to export palm oil to other countries, then you should consider searching online. You should do a proper background check before giving your palm oil out for export.

Conclusion On Starting A Palm Oil Business In Nigeria

The palm oil business remains a juicy business opportunity that anyone can start without a huge investment.

With the ever-increasing population, the demand for palm oil will also continue to rise. It is an opportunity for you to start this business and make a huge profit from it.

The palm oil business is one of the profitable businesses anybody can engage in. 

Because of the demand for the product and the ease at which one can start it without elaborate feasibility study and report unless one is going to palm tree plantation and/ or setting up palm oil milling plant.

You can make over 1 million nairas this season storing and reselling red palm oil and I am going to show you exactly how to do it. It’s not difficult at all; in fact, it is one of the easiest businesses you can do in Nigeria and make quick money within four months.

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