The palm oil business is one of the lucrative businesses in Nigeria because of its diverse usefulness and the huge profit involved. In Nigeria, palm oil is one of the essential needs for cooking most meals. The interesting part of this business is that every part of the palm tree (fruits, leaves, trunks, and sap) is used for different things.
The palm fruits are processed to produce palm oil, the leaves on the other hand are used for roofing homes in rural areas. While the popular palm wine which is the sap is a refreshing and widely loved beverage in Nigeria.
Gone are the days when people think that the only sector to make cool money in Nigeria is oil and gas. Nowadays, industries that are being overlooked are the ones raking in huge profits for the business owners.
An aspiring entrepreneur must be able to look wide and deep when investing in a business. Not long ago, Nigeria was the third-largest producer of palm oil, with over 2.3million hectares (5.7×106 acres) under cultivation.
This article covers everything you need to know about starting and running a successful palm oil business in Nigeria. Additionally, you will also learn about the different areas of the palm oil business so you can choose the best that works for you depending on your start-up capital.
Palm Oil Business Defined
Palm oil is an edible vegetable oil derived from the fruit of palm trees and it is reddish in colour. It is a native oil with rich components found in Nigeria and some parts of Africa. Palm oil can thicken when you store it in a cool place for a long time.
Uses Of Palm Oil
A lot of people know palm oil to be used for cooking. Asides from being used for cooking, palm oil can be used for:
- Prevention of vitamin A deficiency, cancer, brain disease, and aging
- Production of soap, cosmetic, body cream, exfoliation cream, margarine, etc
- Release of stomach pain
- Production of drugs
- Treating malaria, high blood pressure, high cholesterol, dementia, etc
- Weight loss and for increasing the body’s metabolism
- Water treatment
- Production of dog and other domestic animal food
- Preservation of food
Requirements needed to start Palm Oil Business
The basic things you need to start this business are:
This is the money you need to begin your palm oil business. The cost to be factored into your capital should include:
- Land acquisition or land rental cost
- Cost of hiring employees
- Farm maintenance cost
- Cost of purchasing the seedlings
- Processing machine cost
- Cost of means of storage
- Transportation cost
The scope of your business will determine the size of land to acquire. It could be a few acres of land or hectares of land.
Here, you may need to hire people to assist you in doing the processing. However, you may go for part-time staff who will only work at different stages of the business.
For instance, you may need a tractor operator to clear the land, then hire other people for the planting process. And during harvest, you can hire workers for harvesting.
How Profitable Is Palm Oil Business?
The palm oil yield per hectare is estimated at 8 tons per year at most. Additionally, the profit farmers make per hectare is around 3.4tons per year.
There are other factors that also affect the profitability of your palm oil business such as the effect of pests and other diseases. Hence, this should be taken into consideration because it can affect the overall profit of your business.
Importantly, the age of the palm tree also has an effect on the yield. Normally, the peak production period of oil palm plantation is between seven (7) and eighteen (18) years after which it started to decline.
Steps To Starting Palm Oil Business
Step One: Choose The Palm Oil Business You Want To Invest In
Typically, there are three main types of palm oil business you can invest in. If you have the required capital, you can invest in the three. Otherwise, you can invest in one or two of the types explained below:
1. Palm Tree Plantation
Palm tree plantation is capital intensive and it requires patience. If you want to start earning from palm oil business immediately, this may not be the best option for you.
In this type of palm oil business, you will need to acquire a large expanse of land. Importantly, the soil must be tested to be sure it is appropriate for palm tree plantation. The land and type of soil used in planting and cultivating the palm affect the quality of the fruits.
The location of the land is also important for easy access to customers. The incubation period after plantation of the palm trees can take five to ten years before harvesting. After harvesting, you can either sell the palm oil kernel seeds to those processing it or you set up a mill to extract the palm oil.
To plant, you will have to buy seedlings. Usually, one seedling in Nigeria costs N150 and you will need at least 1000 seedlings for a start. Importantly, ensure you give at least 8-9 meters space between two plants.
2. Set Up A Palm Oil Extraction Mill
The second type of palm oil business is the setting up of palm oil extraction mill. This is also capital intensive but not as expensive as palm tree plantation. All you need to begin is the installation of palm oil milling machines for the processing of the palm oil kernel seeds.
Basically, you can either use the milling machines for personal or commercial processing. You can rent out the machine to people who want to process their palm kernel. You can make cool cash from this business
if you are positioned in an environment where the machine is usually needed.
One thing to note however is that palm oil has its season. The peak season is between January to May. So, you may not make so much money during the off-season which is around July to December.
Alternatively, you can install the milling machine for your personal use, process the palm oil kernel, and sell the palm oil to consumers or resellers.
To process for yourself, you need to purchase the palm kernel in large quantities from harvesters and process them into palm oil in your mill, then sell to retailers.
3. Sales Of Palm Oil
Most palm oil business owners invest in this type of palm oil business because it is the cheapest and easiest part of the business. This business involves the buying of palm oil in large quantities and selling to consumers.
To get more profit from this business, you can store the palm oil in a cool place for months, then sell them during off pick period when the supply of palm oil has reduced and demand is high.
This guide will focus on this area of palm oil business.
Step Two: Draft A Business Plan
As soon as you’ve selected your palm oil business niche, draft out a business plan that will guide your business transaction. While writing your business plan, you need to carry out a thorough feasibility study and market research to understand the nature of the business.
Learn about your competitions, the prevailing prices, and how and where to buy palm oil at a cheap rate. A business plan is a detailed document stating the short and long term objectives of your business and how to achieve them.
In writing your business plan, the following information should be included:
- Executive Summary
- Company Description
- SWOT Analysis
- Market Analysis
- Financial Analysis
- Marketing Strategies
- Competitive Analysis
Step Three: Register Your Palm Oil Business With CAC
At entrepreneurs.ng, we encourage aspiring entrepreneurs to structure their business as soon as they begin. The first step to structuring your business is to register it with CAC. There are several benefits you stand to gain when you register your business. One of them is that you can open a corporate account where customers can pay into.
Additionally, registering your business makes your customers trust you. To begin, run a name search on CAC’s portal to confirm if your chosen name has not been registered by another person. Thereafter, you can begin the registration process. With basic information like valid ID card, passport photograph, signature and personal details, you are good to go.
Alternatively, you can hire a lawyer to help you register it. One of the recommended firms that can help you speed up the registration process is ReDahlia, located at 43B, Emina crescent off Toyin Street, Ikeja, Lagos.
Step Four: Set Up A Storage Space
The next step is to set up storage space. Ensure the space is cool, safe, and dry. Rent a space or a room where you can store the palm oil while you wait for the right time to sell. Additionally, you will need to purchase kegs or drums to store your oil. Most times, people go for the 25litre yellow kegs.
Step Five: Arrange With Suppliers
In case you are not the one producing the palm oil, you will need to have a solid arrangement with suppliers you can purchase from. If you carry out step two well, you will have the right knowledge suppliers to source your product from.
There are states in Nigeria that are known for producing palm oil in large quantities. Although there are several other states that produce palm oil, these states are seen as the largest producers of quality palm oil in Nigeria.
- Delta State
- Akwa-Ibom State
- Cross-River State
- Bayelsa State
- Imo State
- Rivers State
- Ondo State
- Abia State
You can visit the various states to connect with suppliers of the best palm oil.
Step Six: Find A Good Means of Transportation
If you don’t know the right mode of transportation to use in transporting your goods, you may end up incurring huge costs that will affect your profit.
Hence, compare prices with several commercial carriers before settling for one. The easiest approach is to ask your supplier to suggest the cheapest, reliable, and safest mode of transportation to you as they’ve been in the system way before you. But, if you have your personal or company vehicle, you will not have a challenge with this step.
Step Seven: Source For Customers
The efforts you put into steps one to five will go to waste if this step is not effective. You need a solid marketing plan which should be part of your business plan to succeed in this business.
As a matter of fact, it is better to source for your would-be retailers before buying or processing your palm oil. This will give you a ready market when you are ready to sell.
You can find retailers amongst market sellers, cosmetologists, housewives, etc. To attract a larger customer base, you can explore other modes of marketing such as:
- Online marketing (social media, google ad, etc)
- Referral marketing
- Newspaper marketing
- Word of mouth
Furthermore, you can also export palm oil as some international countries may have the need for palm oil, and Nigeria is known for its quality palm oil.
If you are considering exportation, one of the trusted place to find international buyers is Alibaba.com, a website known for connecting suppliers or manufacturers with buyers. Vconnect is equally a good place to try.
Apart from Alibaba and Vconnect, run thorough research for other platforms that can aid your palm oil exportation and go through our content on how to run an export business.
Finally, there are companies in Nigeria that buy palm products. Some of them include:
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 oil.
OM Oil Industries Ltd
Another palm oil buying company located in Ikeja, Lagos.
In conclusion, you cannot go wrong with palm oil business if you dutifully follow the steps highlighted in this article. As with every business idea we discuss on this platform, you can not substitute hard work and persistence. Work hard and stay the course, success will come.
Do you run a palm oil business and will like to share some insights? Do you want to start a palm oil business in Nigeria? We will like to read from you in the comments.
All the best!