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ESTABLISHING A PALM OIL TRADING BUSINESS IN NIGERIA;HOW VIABLE?
Palm oil is gotten from the processing and milling of fresh fruit bunch {FFB}. “Oil" is a collective term for more or less viscous, generally organic-chemical liquids. Depending on their chemical composition, a distinction may be drawn between fatty, essential, mineral and silicone oils.
There are 17 characteristics which are used to define and grade palm oil in order for it to be internationally traded. Dominant among them are the levels of free fatty acid (FFA), followed by dirt, iodine value, and other contaminants.
Palm oil can be differentiated into two {2} types namely
TYPE A: Special Palm Oil {SPO}
The minimum requirement for SPO is an FFA of less than 5%, which can be consumed or used in products such as creams or further refined for soaps and bleaches. SPO always sells at a higher price than TPO and supplies the industrial market, which utilizes the high quality crude and refined palm oil and fractions (olein and stearin) as raw materials for their products: soaps, frying oils for noodles, bakery fats, etc. Though SPO oil has a higher value, there is a constant tension between SPO and TPO as the latter is in constant easily accessible demand and is easier to process than SPO.
TYPE B: Technical Palm Oil {TPO}
The domestic food market focuses on the TPO, which is consumed by households and commercial enterprises (Hotels and Restaurants) for use in food preparation. In Nigeria, the volume of oil required in the traditional food market is three times more than the requirement in the industrial market, so the household traditional market is therefore the major determinant of supply deficit in Nigeria.
Palm oil with free fatty acid between 5 - 30% is acceptable in this market due to the varied requirement for Nigerian cuisines. The traditional market is served by small scale producers of palm oil which account for more than 70% local production (650,000 tons).
Nigeria was once one of the largest producers of palm oil. Though domestic production is nearly 900,000 tons, there is an estimated overall gap in Nigeria of between 150 and 300,000 tons of TPO and 200,000 tons of SPO, much of which is currently met through imports.
The Market for the palm oil in Nigeria is huge, sustainable and expanding. The estimated size of the local market is put at about N3 Billion for Palm Oil.
Price of palm oil is largely affected by production or output of the palm oil within the year and general inflation. The market for palm oil is one without much stiff competition because the demand currently surpasses supply and this is more evident during September-December period of the year where increase in price can be as high as 100% because production is low.
In response to the production in Nigeria and increasing demand, there has been some increase in private sector investment in the development of new oil palm plantation and the expansion of existing ones. In addition to the large plantations, smallholdings and out grower’s schemes are being promoted by the Federal and State Governments.
In 2005, in order to stimulate local production and attain self sufficiency in vegetable oil production, the government introduced the presidential initiative on the development of edible oil over a period not exceeding three {3} years.
Under this initiative, attention was focused on the promotion of eleven scheduled oil seed crops which are oil palm seed, groundnut seed, Soya beans seed, cotton seed etc and production target was set for each of the crops under the programme as follow
1. Oil Palm: 1 million hectares capacity of producing 15 million fresh fruit bunches
2. Groundnut: 15 million tons annually
3. Soya beans: 670,000 1 million tons per annum
4. Seed Cotton: 1 million tons over the plan period
After about seven {7} years of the initiative, the domestic edible oil demand far exceeds the national production.
Palm oil is a seasonal product and it has two seasons namely the first and the second season.
In first season starts from February – May and this is when production is high and at such price is very low while the second season starts from September – December and the production is usually low with a consequent increase in the price of the product.
From the above figures, it is clear that there is a large and sustainable market for palm oil in Nigeria.
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Our reports are designed to assist start-ups to understand the legal and financial requirements of starting the business, the market trends vis-a-vis demand and supply, competition, risk identification and mitigation strategies.
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Report Title: ESTABLISHING A PALM OIL TRADING BUSINESS IN NIGERIA;THE FEASIBILITY REPORT.
Report Code: FORA/PALMOILSALES/FMR/03983452
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