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Oil Palm Value Chain
Oil Palm Value Chain
SUBMITTED TO
FEBRUARY, 2021
TABLE OF CONTENT
5b. Table 2: Cost and Returns of Value Addition in Palm Oil Processing
for 24 Tonnes (2ha) FFB/Annum ...................................................................... 9
REFERENCE ..............................................................................................................19
i
1.0 INTRODUCTION
Oil palm (Elaeis guineensis Jacq) bounds in Nigeria especially in the southern
region. Oil palm is found in both wild and plantations (Nwaugo et al; 2008; Ohimain
et al. 2013a). Basically oil palm thrives in tropical and subtropical regions (Izah and
Ohimain, 2015). It is a monocotyledons belonging to the palmae family (Ohimain et
al., 2012a) and produces separate malke and female inflorescences (Ibitoye and
Onje, 2013). Oil palm is propagated by seed.
During cultivation, oil palm is spend 9 – 12 months in the nursery section
before being transplanted. The useful economic plant start bearing fruit after 3 –
6years of planting, which could reach optimum yield in about 10years for Tenera
and Dura varieties respectively (Ibitoye, 2014; Ohimain et al; 2013a). Oil attain a
height of 10 – 18meters tall depending on the variety. Each oil palm tree produces
compact branches of fruit lets, weighing about 10 – 25kg with 100 – 3000 fruit lets
per bunch (Ibitoye and Onje, 2014).
The palm branch which bear the fruit develops into fruit bunches, each
bearing up to 200 fruits is a drupe with an oval, spherical or elongated in shape and
sizes depending on the variety (Ibitoye, 2014). Generally, palm fruits are dark in
colour but turn red, yellow, orange and blackish-red when ripe (Ibitoye, 2014;
Ibitoye and Onje, 2014).
Oil palm have been severally reported as the most oil bearing plants in the
world (Izah and Ohimain, 2013b; Akangbe el al. 2011; Oke chalu et al; 2011; Singh
et al 2010; Tagoe et al; 2012; Ugbah and Nwawe, 2008). Palm oil is one of the major
products produced from the processing of oil palm. Palm oil has found application
in both food and industries. Izah and Ohimain (2013a), Pleanjai et al. (2007)
reported that palm oil is a suitable feedstock for biodiesel production. Embrandin
et al (2012), Aghalino (2000), Izah and Ohimain (2013a), Ibitoye (2014), Basiron and
Weng (2004) reported that palm oil is used for soap, margarine, soap candles, base
1
for lipstick, waxes and polish bases, confectionaries, tin planting, lubricant and
pharmaceutical products. However, nearly 90% of global palm oil produced is used
for food and feed production including baking and soap making etc (Mahlia et al;
2001Ohimain and Izah, 2014a; Akinola et al. 2010, Izah and Ohimain, 2013b).
Nigerian Institute for Oil Palm Research (NIFOR) (1986) reported that oil palm
contributes over 15% or about N62 million yearly to the national revenue and also
provides employment to millions of Nigerians. Palm kernel another important
product forms a substantial export product while the remainder is crushed locally
for palm kernel oil and palm kernel cake which is major ingredient in livestock feed
manufacture. The ever popular palm wine, which is also very important socio-
economically, is obtained from the male inflorescence. The leaflets of the oil palm
are used for making thatches for roofing houses, the leaf rachises are used for
fencing, reinforcing buildings and basket making. The mid ribs of the leaflets are
used for brooms. The bunch refuse which is left after the fruits have been removed
from the palm bunch is a source of potassium. Locally, it is used for making soap.
The palm trunk is sawn into timber and used in constructing fences, roofing houses
and reinforcing buildings.
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year. On average, a minimum annual rainfall of 1,800mm is considered optimal,
ranging up to 2,500mm without harm and above 2,500mm is considered
unfavourable because this interferes with a lower solar radiation. The palm can
tolerate temporary flooding provided the water is not stagnant and the water table
is fluctuating (Verheye, 2010).
In Nigeria, oil palm grows best in acid sand soils. They are soils having loose
brownish top soil over a great depth of largely non-differentiated, non-mottled,
non-gravelly, porous sub-soil in which coarse sand is the predominant fraction and
clay content is up to 35% (NIFOR, 1986).
Delta State has the potential to be a leading oil palm producing state in
Nigeria having met these ecological requirements and growing conditions.
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economic stability in Delta State and providing income for rural poor farmers. It
also has the prospects providing employment for millions of unskilled and semi-
skilled people. Ukpabi (2014) reported that the success or failure of processing
depends largely upon how labour and other associated resources are efficiently
used because it will increase the quality and quantity of food availability for
consumption and trade.
Oil palm sector could provide direct employment to about 4 million to oil
palm growing states in Nigeria and indirect employment to several people that are
involved in other value chain such as marketing (Ahmed, 2001). According to
Olagunnju (2008), Ohimain et al; (2014b, 2012b), the cultivation and processing is
a source of livelihood to several millions of families especially in the rural areas.
Table 1 below represents the number of staff that oil palm can employ in
smallholder and semi-mechanized palm-oil mills according to operational activities.
4
4.0 PRODUCTION SYSTEMS AND PATTERNS
The Nigerian oil palm belt covers twenty four states, including all nine states
of the Niger Delta (Akwa-Ibom, Abia, Rivers, Edo, Imp, Ondo, Bayelsa, Cross River
and Delta). Within the oil palm belt in Nigeria, 80% of production comes from
dispersed smallholders who harvest semi-wild plants and use manual processing
techniques. Several million smallholders are spread over an estimated area ranging
from 1.65million hectares to 2.4 million hectares and to a maximum of 3 million
hectares. The estimated for oil palm plantations in Nigeria ranges from 169,000
hectares (72,000ha of estate plantations and 96,000ha of smallholder plantations)
to 360,000hectares of plantations (PIND, 2011).
Delta State has an estimated 1.2 million hectares of oil palm plantation. This
is greatly influenced by the supportive vegetation and the efforts of both the
government and the farmers. Like in Nigeria, 80% of oil palm production in Delta
State is in the hands of small scale farmers mostly characterized by smallholders,
low productivity, low resource base and low income. A large proportion of
production comes from these dispersed smallholder farmers who harvest semi-
wild plants and use manual processing techniques.
5
2020). However, the yield is affected by a number of factors such as
age of palm, seed quality, soil and climatic conditions, quality of
plantation management and the timely harvesting and processing of
FFB. The ripeness of FFB harvested is critical in maximizing the quality
and quantity of palm oil extracted. This is in consonance with the
report of Singh et al; 2010; Sridhar and Ade Oluwa, 2009; Chavalpant
et al; 2006; Mahlia et al; 2001; Ohimain et al; 2013b who opined the
yield of 10 – 30 tonnes/hectare/annum of FFB.
During processing about 9 – 30% of the palm fruit forms palm oil while
70 – 90% end up as wastes and by-products such as empty fruit bunch,
chaff, palm press fibre, palm nut, palm kernel, palm kernel shell
(Ohimain et al; 2013b). Other waste generated include gaseous
emissions such as Nitroden dioxide (NO2), Carbon monoxide (CO),
Sulphur dioxide (SO2), Hydrogen sulphide (H2S), Ammonia (NH3),
Volatile organic compounds and suspended particulate matters etc
(Ohimain et al; 2013c; Ohimain and Izah, 2013a) and Liquid wastes
such as palm oil mill effluents (POME). All these find its usefulness in
the value addition of oil palm processing.
6
Flow charts from FFB to Palm Oil and PKO from two different field surveys
are as shown in figures 1 and 2 below:
OIL
CLARIFICATION NUT DRYING
CRACKED MIXED
SEPARATION DRYING DRY SHELL
DRY SEPARATION
(total shell
WASTE WATER 73kg
SLUDGE CRUDE PALM OIL WET SEPARATION
(180kg) (225kg) WET SHELL
KERNEL DRYING
KERNELS FUEL
(57kg)
Figure 6. Flow Chart for the Palm Oil Process (PIND, 2012)
7
MASS BALANCE – FFB TO PALM OIL
Moisture
10%
X
Oil in Condensate
FFB -0.03%
Sterilization
100%
Sterilised FFB
89.97%
Empty bunch
23.4% to FFB
Stripping
14.75% water
8.20% NOS
Dilution water Fruitlets 0.45% oil
17.30% 66.57%
Boiling
Digestion
Pressing
Sludge Nut
29.40% 14%
26.60% water Fibre Shell
2.4% NOS 17.97% Nut Cracking
0.40% oil 7.28%
7.39% water 1.47% water
9.70% NOS 5.70% NOS
0.88% oil 0.11% Oil
Kernel
Oil 6.34%
22.90% 1.34% water
1.98% NOS
Source: Field Survey (2021) 3.40% Oil
8
5b. Table 2: Cost and Returns of Value Addition in Palm Oil Processing
for 24 Tonnes (2ha) FFB/Annum
9
Items Amount Cost of Percent
(N) of Total Cost (%)
Kernel Oil Pressing Stage (Total) 17,000 3.49
Labour 12,000 2.46
Fuel / Wood 4,000 0.82
Other Inputs 1,000 0.21
Productivity Analysis
Total Revenue (TR) 1,172,000
Total Cost (TC) 487,800
Profit (л) = (TR – TC) 684,200
Gross Margin TR – TC x 100 140.2606
TR 1
Gross Return / Naira Invested 1,402.6
As can be seen in table 2 above, the harvesting stage of the value addition
process, labour accounted for 8.2%, loading accounted for 3.69%, offloading costs
were 2.05%, transportation costs accounted for 12.07%, while threshing
accounted for 6.15%, making a total of 32.16% of the total cost.
10
Similarly, the digestion, pressing/extraction, clarification, storage/packing,
kernel recovery and palm kernel pressing stages constituted 6.93%, 12.05%,
11.38%, 1.03%, 8.77% and 3.49% respectively of the total cost.
From the profitability analysis, it can be seen that total revenue was
N1,172,000.00, total variable cost was N439,000.00, while depreciation was
factored in as N48,000.00 bringing the total value addition cost to N487,800.00.
This gave a profit of N684,200.00 for every 24 tonnes of FFB processed (i.e
N28,508.00/tonne) and a gross margin of 140.26%, signifying that for palm-
processing, the investor if bound to recoup N1.40 as profit. Thus, it is clear that
adding value to oil palm by processing it to palm oil and other derivations is
profitable. This is in line with the previous report by Nwalieji and Ojike (2018).
11
Figure 3: Tree to Table, Palm Oil Value Chain Map
In-Country Mill
12
In Nigeria, Beveridge (2009), report that the products that emanate from
value addition in oil palm processing can be grouped into three: fruit base (crude
palm oil, fibre and sludge), nut base (Kernel, palm cake, shell, empty bunch) and
truck based products. This is summarized in figure 4 below:
The products of the value addition in oil palm processing is summarized in figure 4
Figure 2: The production from value addition in oil palm processing (Beveridge, 2009)
13
Generally, the supply of TPO, SPO and PKO to the end consumers or end-
users is carried out through local and foreign sources. The local sources is
characterized by three main actors namely:-
(i) Palm oil dealers;
(ii) Secondary processors; and
(iii) Automated processing plant owners.
There are also three main groups of end-users:-
(i) Household consumers of TPO;
(ii) Commercial users of TPO; and
(iii) Industrial users of SPO, SPO Value added products and PKO.
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own and operate distribution stores and have good distribution
network either in retailers, wholesalers or individual markets.
(iv) This group buys and stores the product during the period of high sully
and later sells to major dealers at a profit during the period of scarcity.
Farmers themselves often times serves as speculators; retaining oil
from their own production and storing it at home until cash is needed.
15
equipment for palm oil processing has led to decline in the nation’s
domestic supply. The processes employed by smallholder processors
is tedious and time consuming because it is carried out in batches. For
instance, it has been reported that the processing of oil palm by
smallholder and semi-mechanized is carried out between 6 – 10 and
4 – 6 days respectively (Izah and Ohimain, 2015b). Smallholder’s
processing method leads to reduction in palm oil yield by 42% (Orewa
et al; 2009) and poor quality of the palm oil processed.
(ii) Poor Attitude Towards Work and Inadequate Government Policies:
Following the deteriorating nature of the Nigeria oil palm industry with
an increasing population, government at various time came up with a
development plan to sustain the industry. The first National
Development Plan being (1962 – 1968); and another between 1970 –
1974 and thirdly 1975 – 1980). The third National Development Plan
(1975 – 1980) stressed the need for smallholder to increase the
plantation size. The policy did not yield optimum result due to poor
attitude towards work. The government attempted to bridge
production and demand gap through the lunching of programme
including planting of 1 million hectares of oil palm for 15 million tonnes
of FFB annually (Ugah and Nwaiwe, 2008). This program did not yield
desired result due to mismanagement rather it made the sector to be
festered.
(iii) Inadequate Credit Facilities and Unequal Distributions: Over 70% of
oil palm processing reside in the rural areas. Most of these processors
process oil palm to palm oil to cater for their immediate needs. Most
of them lack long term asset to be used as collateral to obtain loan
from the bank. On oil palm perspective, the government has not
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provided robust credit facilities in the form of loan to the farmers with
little or interest. The little that the government has provided to the
farmers is hijacked by the political farmers. As such, most of the
people that get the loans often divert it to other areas, neglecting the
sole aim of the loan/credit facilities. Hence, the farmers continues to
cultivate and process palm oil on their own capacity, despite having
long term vision on the business.
(iv) Poor Infrastructural Facilities: Agriculture generally is being carried
out in the rural areas where majority of the cultivable land are located.
The rural areas in Nigeria lack basic infrastructures such as electricity
supply, good road, well equipped school and hospital. Hence most oil
palm processing mills especially smallholder generates their own
energy using palm oil processing solid wastes such as empty fruits=
bunch, palm kernel shells, chaff and palm press fibre for heating during
sterilization. The smallholder processors also depend on the diesel
powered engine for digestion activity. Due to lack of these basic
facilities, the cost of oil palm processing is very high.
(v) High Cost of Labour: Oil palm production is elaborate as well as labour
intensive. Most smallholders carryout their activities manually which
is very expensive. For instance the cost of harvesting one bunch of FFB
is N100 (Field Survey, 2021) which is very high compared to
mechanized harvesting.
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investing in real assets and investing in publicly traded financial instruments. More
specifically, these can be broken down as follows:-
(i) Investing in upstream plantations (planting, cultivation and
harvesting) – real assets.
(ii) Investing in midstream assets such as crushing mills and refineries
(real assets).
(iii) Investing on downstream assets such as vegetable oil brands and
production assets, personal care brands and production assets or
industries product brands and production assets (real and intangible
assets).
(iv) Investing in oil palm futures.
Nigeria has an estimated population of about 170 million (Izah and
Ohimain, 2016). Investing on oil palm sector could provide direct
employment to about 4 million to oil palm growing states in Nigeria
and indirect employment to several people that are involved in other
value chain such as marketing (Ahmed, 2001).
Studies have shown that there is profitability in oil palm processing business.
Oladipo (2008) stated that palm oil enterprise is a critical commodity traced
globally and helps for the sustenance of the economy.
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