How to Start Palm Oil Business in Nigeria. The palm oil business has grown over time to become one of the most lucrative businesses in Nigeria. Palm oil trading has been practiced by Nigerians mostly in the southern part as far back as the 1400’s, when it was sold to the Portuguese and British.
The demand for palm oil has continued to increase since that early time, and as I guess you might know from basic economics, when there is a demand then there also needs to be a supply to meet that demand. This is what makes the palm oil business to be a lucrative one.
This article is aimed at showing you how to get involved in the palm oil business and also how to profit from it.
Before taking on the business angle, let me give you a brief introduction to palm oil. Palm oil is a thick reddish liquid that is extracted from the skin of the palm fruit. It is known to be a reliable source of vitamin E which is essential for healthy skin. It is also very rich in carotene which is important for maintaining good eye sight.
Palm oil is widely produced in most of the West African countries, with Nigeria being a foremost producer. It is also widely produced in Indonesia and Malaysia.
Indonesia is currently the world’s highest producer of palm oil while Malaysia is the world’s highest exporter.
Along with rice and cassava flakes (garri), palm oil is one of the most sought after food items in Nigerian homes. Almost all of our cooking is done using palm oil, making it the most demanded of all the edible oils used in cooking.
Apart from household use, palm oil also has many important industrial uses such as in the production of margarine, ice cream, lip sticks, noodles, soaps, detergents and many other applications.
It is clear to see that palm oil has a huge demand both locally and internationally, in the home and industrially. This has resulted in the high demand for palm oil, making the palm oil business a very lucrative one.
There are three main aspects of the palm oil business. These are;
This involves planting the oil palm trees on large parcels of land. You recoup your investment by selling the palm bunches when they are mature.
This business is very profitable but it is very capital intensive and requires around 5 years of investment before you will begin to benefit from it.
In this aspect of the palm oil business, you buy bunches from the plantation owners, produce the palm oil yourself and then sell it to buyers.
This aspect is also capital intensive because you will need to purchase the required machinery for the production of the palm oil.
The sale of palm oil is also capital intensive but the difference here is that you can decide to engage in this business and operate at your own scale.
You can decide to buy as much as your capital will allow you to. This is the aspect of the palm oil business that this article will be introducing you to.
The sale of palm oil is one business that has been known to provide people with as much as 100% return on their initial investment. It is very lucrative, sustainable and largely stress free.
Those engaged in this business normally make use of either of two business models.
In this business model, you can buy the palm oil from millers and the resell to buyers. This method though with a smaller profit margin will provide you with consistent cash flow all year round.
The major thing you will need to put into consideration here is that you must ensure that you can get your palm oil from a cheap and reliable source.
This method takes advantage of the fact that oil palm is a seasonal crop. The oil palm tree peaks in production between January and May.
During this period of high production of palm fruits, palm oil floods the market thus forcing the price down significantly.
During this period of plenty, palm oil can be sold for ₦3500 to ₦4500 for a 20 liter container. This is the time of the year when can purchase your products in large quantity. Between the months of June and December, production of palm oil usually plummets, thus forcing the price to go up.
During this period of scarcity, palm oil can go up to between ₦7000 to ₦8000. This is when you will now sell your products, and make massive profits from it.
This business model is also aided by the fact that while the supply for palm oil peaks and troughs throughout the year, the demand for palm oil is almost constant all year round. Coupled with this, palm oil has a relatively long shelf life, which means that it can be stored without any special preservation for long periods of time.
The business model you intend to operate will determine the amount of capital you will need to put into this business. If you intend to store and sell then you will need to secure a significant capital to purchase the commodity in large quantity.
One can start off with a capital of between ₦200,000 to ₦1,000,000 or more
For you to be successful in this business, there are some things that have to be put in place.
The importance of this cannot be over emphasized. Remember that you are not the one to produce this commodity. The only way to get it is to have reliable suppliers who will give you the palm oil at a good price.
Palm oil is mainly produced in the southern and eastern states of Nigeria, such as Edo, Delta, Anambra, Imo, Ebonyi, Cross River, Akwa Ibom, Bayelsa, Rivers, Abia and Enugu. It is also produced in some parts of Ondo state.
Please Read: Prominent Crops in Edo State
It is advisable that you source for your supply from any of these states, depending on your location in Nigeria.
The location of your business will also go a long way to determine how successful it will turn out to be. For better profits, your palm oil business should target sales in the urban areas or in states where palm oil is not produced locally. This will definitely increase your profit margin.
Another factor you also have to consider when deciding a location is availability of storage space. For instance, if you choose to operate the “store and resell” model then you will need to get a good storage area which is also close to your market.
In the palm oil business, transportation is very important. You will need to transport your commodity from the miller to your storage location and then to the market when it is time to sell them.
If you have enough capital to purchase a small truck then that will help your business a lot. If you cannot buy one, ensure that you have a reliable one that you can hire when the need arises.
The palm oil business is mostly transacted in 10, 20 25 or 50 liter containers. For large quantities, they are sold in barrels (one barrel is equal to about 120 liters)
The palm oil business has continued to stand the test of time in providing income for Nigerians and turning many young people into millionaires. The idea is to start small, learn the tricks of the trade and slowly climb up the ladder.
You can start this business from selling, then progress into milling and then move on to having your own plantation. It is at this stage that you will be able to make the maximum profit from the palm oil business.
Hopefully, this article has given you an insight on how to start a palm oil business in Nigeria. If you have other thoughts, comments or questions, please make use of our comment section below.