You’ve always heard people talk about how profitable palm oil production is and you’re seriously considering investing in this sector?
Here’s a simple guide to profitably investing in this new red gold. Answers to the following questions will enable you make the best investment decision regarding the Oil palm business.
1. What Does it take to invest in the processing of palm oil?
What it takes to invest in the processing of palm oil include time,
financial resources and patience as well as resilience and what you could
call stubborn doggedness.
Any of these that is not present will
tremendously reduce the odds of making it in the business of palm oil production.
2. Can I start Palm Oil Production on a Small Scale?
It’s exciting too to know that you’re willing to start small without
waiting for the big time investor with the big hot cash (who never comes by the way).
However, consider the components of the oil palm value chain outlined below to know exactly
which aspect of the ecosystem you might want to address based on your time and
3. What is the Market size for finished Palm Oil Product?
The market for finished product, that is , the demand for finished
palm oil product is not just large, but really overwhelming.
We at U&I Palm Enterprises for instance find it very challenging meeting up with the huge demand we get everyday despite the fact that we carry on aggressive capacity expansion regularly).
If your quality is outstanding like that of Ultimate Palm Oil (which by the way is our core brand), the market response cannot be anything other than tremendous.
So, even when you decide to start, please ensure that your product quality is high and never compromised.
4. What does the supply of Raw Materials (Palm Fruits) look like?
Sadly, the supply of raw materials especially the palm fruits is ridiculously poor.
So, even before you start palm oil Production, please be sure of a very reliable source of raw materials, otherwise, you’ll soon be out of business.
You could even decide to focus on this aspect of the value chain which is also very profitable by the way.
You might also like Palm Oil Production in Nigeria: Leveraging Global Value Chains
5. Which Aspect of the Oil Palm Value Chain should I address?
These are the three aspects of the Oil palm value any of which you might decide to address. Please try to focus on one since you’re starting out. You might decide to extend to the others much later.
a. Upstream sector: this includes the cultivation of oil palm plantations. If you have landed properties or could secure one, you might consider venturing into this. Note that for startups, this value chain is ideal for those with existing landed properties.
All you’ll need include seedlings, fertilizers, pesticides and labour. If you do this, we at U&I Palm
Enterprises could buy from you, that way, you have a steady market for your outputs.
b. We also have the midstream sector. This involves processing packaging and storage. Here, the palm fruits are processed in palm oil, palm kernel oil, palm kernel cake, biofuels, fertilizers etc.
To get involved in this aspect of the value chain in a small scale, you need some funds to procure processing equipment, landed property where your factory will be situated as well as packaging materials and storage facility.
If this is too expensive for you, you could buy the palm oil from local manufacturers and further process it (if you have the equipment for that) and package it. Please note that choosing this option makes you unable to totally control the quality of your product.
Your product might therefore fail to meet minimum standards prescribed by regulatory authorities. This among various other considerations are reasons why U&I Palm Enterprises does not adopt this option.
c. Downstream Sector: this is the aspect of the Oil palm value chain that involves marketing and distribution. Here, you could identify a high quality palm oil product, buy in bulk and sell.
To be successful in this aspect of the value chain, you need a very robust/reliable distribution network. All you need here is the funds with which you can procure the packaged palm oil as well as transport same to distribution points.
Note that since you’re starting out, you’re most likely not credit worthy, hence you might not expect to be given the product on credit, that is, you might have to fully pay for the product.
6. How Else can I invest in Palm Oil Production?
There’s yet another way of investing in the palm oil value chain that doesn’t necessarily require your direct involvement in the activities within the chain. That is by identifying a successful business within the ecosystem and investing in such a business.
You can make a ton of money as return on investment depending on the success level of the business. This option is ideal for individuals or investors who don’t want to be directly involved in the Oil palm value chain but want to benefit from this highly profitable business.
Consider these options and take a decision on which aspect of the value chain you would like to address. Like any other business, there are risks, by the way. That is another subject entirely, but you can learn more in this article on how to build a successful small business.
Good luck and welcome onboard the oil palm ecosystem.