Oil Palm Farming or Processing: Which one has the greatest value?

Today, I will like to share with us some interesting questions. These questions were directed to me by a potential oil palm farmer (An Investor). After developing a comprehensive feasibility report/Business Plan for his proposed new project, he was impressed but still had some questions bothering his mind. So, he decided to book a date with me, so that he can ask the questions, which was still part of his preliminary studies for his proposed business.

The reason for posting these questions and my response was because I found those questions very interesting, which can be resourceful to other potential farmers.

Below were the questions and my responses:    

Given the fact, that Nigeria and the entire world is heading into a recession, is this a good time to invest in palm plantation?

#Smiling… The fact that Nigeria and the entire world is heading into a recession should even be a wakeup call for us to invest in agriculture generally. The recent crash of crude oil product is another indication that our government need to embrace agriculture, as well encourage its citizen (particularly youths) to go back to farm. Oil palm (Elaeis guineensis) is one of the most important economic oil crops in Nigeria whose importance cannot be underestimated. There is a ready-made market for palm oil in Nigeria.

Will it make more sense to put capital in palm oil processing plant, buy palm fruits from farmers and extract the oil?

#Hmm mm….. Well, I will say NO… My No is not because putting capital in Oil palm processing plant is wrong. But, the reason why the business may fail is because you may not get adequate inputs (palm fruits) to buy from farmers. What is the essence of investing millions of naira in a processing plan when you are likely not to get input to process?

Why do I say this?

70 percent of oil palm production cost goes to fertilizer application. It takes 3-4 years before it start fruiting.

NB: The 3 years can even be extended to 5 – 6 years or more, if the farm or project is not properly managed. Labour in agriculture is becoming difficult to get and expensive nowadays. Even if you manage to get a labour, you still need to read one of these articles to know the challenges that comes with managing your labour. Annual or Daily labour: The cost implications and making the right decision or Current state of AGRICULTURE in Nigeria

Also, 70% or 80% of palm production risk is in the palm farming. This include; incessant bush burning during dry season by local hunters and herdsmen, grazing at early stage by herdsmen, labour acquisition and management, etc.

Now imagine, if I can manage to scale through all those hurdles, why would I think of selling my produce as palm fruit alone? Why wouldn’t I process my fruit myself? Even if I’m cultivating on a hectare, farmers will rather use the traditional method of palm fruit processing. Also, you will hardly see a palm plantation of 10-20 hectares without a processing plant in place.

NB: Some local market sell palm fruits (Banga) for individuals who want to prepare Banga soup. Most of these plantation are not big. You will make more profit when you process it.

In summary, if you put your capital in oil palm processing plant without having your own palm plantation, my fear is that you may struggle to get input. It won’t make sense if you set up a plant that can process 1000MT of palm fruit per day, but you hardly get palm fruit of 200 MT. Your plant will be underutilized.

If we shift the focus to processing instead of planting, what other processing plants can be added. We grow a lot of cassava in Nando, Anambra East Local Government, Anambra State. So if we put palm processing and cassava processing, what else?

I think my response to the second question already answer part of this question. It will make sense if you have the palm plantation of your own. Your size of your plantation will even help you determine the processing plant to setup (in terms of capacity).

You can set up a cassava processing plants, the reason is because cassava is different from oil palm in terms of crop life cycle and production cost. Even without setting up your own cassava plantation, I’m sure you see farms to buy from. All what you need is to acquire a big vehicle for transporting cassava to your factory. It will even bring joy to people or villagers within and outside the community because the existence of your cassava processing plant guarantee a ready-made market for their cassava.

I hear a lot about prospects in pig farming. Is this an area you understand? What’s your view in comparison with palm planting?

Well, I’m not a pig farmer, but I have heard a lot about piggery and I’ve also visited quite a lot of pig farms. All I can say is that it is also lucrative. I will not like to compare pig farming with palm planting because they are two different areas of business. Palm is under crop production while pig farming is under livestock farming. Each sector has its own challenges. I think this article will give you an insight about some of the problem Current state of AGRICULTURE in Nigeria.

 I ordered for palm oil from ANAMBRA today. The cost is N14,000 for 30L. Our feasibility is based on 7,500 naira for 25L. Where is greatest value in this food chain? Primary farming, processing, distribution or retail?

I’m quite aware that cost of living in the Eastern part of Nigeria is expensive, couple with the coronavirus pandemic. Because as at March, April, and May, the cost of 25L of palm oil is been sold between the ranges of 6500 naira ($16.7) – 7500 naira ($19). This price is also been influenced by the coronavirus pandemic. Even though our feasibility study was based on 7,500 naira ($19) for 25L, and the business was considered feasible. Selling yours for 14,000 naira ($35.9) is also a huge advantage and plus to the project.

Based on the greatest value… hummmm, Well, I think the processing is actually where you can make much profit. But you can’t process if you don’t invest in the palm planting.

Another thing you can consider is, instead of setting up a processing plant, which may cost you millions of Naira, with the goal of buying palm fruit, processing and selling. Having talked about my fear for this line of business, why not just be buying the already processed palm oil from the source, and rebrand or repackage it, then sell it. You can export it, sell to hotels, shopping malls and other big organizations. All what you just need to do it to identify oil palm seller with good quality oils, reach an agreement with them. This type of deal will brings joy to the producer because he would not have to be carrying his produces to the market himself again.