From manufacturers operating in cosmetics, furniture and printing to those in agrochemicals, industrial cleaning and animal feed, oil palm is the raw material at the centre of the $150 billion edible oil industry feeding their factories.
Fortunately, in Nigeria, this raw material is produced 365 days a year.
Oil palm is a wild mangrove tree that also serves as the source of a versatile fruit called palm fruit. The oil extracted from the palm fruit is of two varieties — crude palm oil (CPO) and palm kernel oil (PKO), and both are in high demand across the world.
In the 1960s, Nigeria was the largest producer of oil palm in the world and controlled nearly 43% of the global market. By 2018, Nigeria’s competitive position had shrunk to the point where it produced less than 2% of total global output. Instead, the market is now dominated by Malaysian and Indonesian producers.
For manufacturers and food factories that use oil palm in production or refining, their ability to run at full capacity and produce quality goods, whether for domestic consumption or export, is determined by the quality of the raw materials they can source.
In the case of oil palm itself, the primary source of these raw materials is smallholder farmers scattered across the country.
The Nigerian oil palm industry is very fragmented and dominated by numerous small-scale farmers, who are responsible for 80% of total production. These are farmers that cultivate small farm plots (5–10 hectares), but also control more than 1.6 million hectares of oil palm land across the country.
However, the challenge with this model is that these smallholder farmers use harvesting techniques that are outdated, slow and inefficient, leading to poor quality raw material for manufacturers, wastages during the harvesting process, and limited availability of high-quality inputs for factories further down the value chain.
Therefore, despite the extension of oil palm production to 24 states in Nigeria, and the expansion of land used for oil palm production to over 3 million hectares, oil palm yield (amount of oil palm produced) was at 0.39 metric tons per hectare in 2017. This is compared with Malaysia’s 3.87 metric tons per hectare, Thailand’s 3.72 metric tons per hectare and Indonesia’s yield at 3.58 metric tons per hectare. This means that Nigeria will use 10x more land to harvest the same metric tons of Oil Palm as Malaysia and Thailand.
Today, manufacturers and food factories in the oil palm value chain lose a lot of money and time in their attempt to source the highest quality raw materials (in this case palm fruits and palm nuts) from smallholder farmers. In fact, 90% of African food factories operate at less than 50% of their capacity, due to the limited availability of raw materials.
The result is that Nigeria has gone from a global exporter to a net importer of the product. Nigeria’s oil palm deficit represents more than 20% of our total production and despite the efforts of oil palm majors like Okomu Oil and Presco, the market is still so large that it creates a premium pricing opportunity for new players. The supply deficit within the sector and growing demand from Nigeria’s population are signals that there is strong growth ahead of the industry.
That being said, if African manufacturers and food factories want to compete with their peers in the global market, they must ensure that their factories are efficiently run and supplied with high-quality inputs.
This is a prerequisite for global competitiveness. And this is the reason that these manufacturers are in desperate need of companies like Releaf.
With our new de-shelling technology and an extremely streamlined sourcing process, our value proposition is twofold. For the farmers, we act as a consistent off-taker for palm nuts by taking them off their hands as soon as they get them, increasing the speed of their inventory turns and take home by up to 50%/month. And for the factories, we guarantee a steady supply of high-quality palm kernels that they would otherwise be unable to source directly from the farmers.
By participating in the value chain, we are creating a market amongst farmers for the previously low-value palm nuts — turning them into high-value palm kernels and acting as a raw material supplier of palm kernels to the food factories.
Before us, there were a number of unattractive options for manufacturers.
On the cheap end of the spectrum, farmers could use their hands to individually select, grade and crack up to 2.5 metric tons of palm nuts a week, with up to 90% accuracy. The problem with this approach is that it is extremely slow and produces very little output for the factories.
In some cases, local cracking equipment can do the job for about $1,000, with an output of up to 24 metric tons a week. However, these de-shellers can waste up to a quarter of the farmer’s original output because of their poor quality control.
Finally, for bigger mills run by large companies, imported de-shelling systems which can do volumes of up to 720 metric tons a week are available, but cost over $350,000 to purchase and are only able to de-shell with about 60% accuracy. They’re designed for the plantation variety (tenera) of oil palm but are ineffective for smallholder palm (dura) because it has a much thicker shell.
However, our solution cost less than half of the cost of an imported de-sheller, are significantly more accurate at 95%, and operate 25x faster than local cracking equipment crackers and 240x faster than de-shelling by hand with a 600T weekly capacity.
Beginning with Nigeria, We are industrialising the African oil palm industry by leveraging technology and direct farmer sourcing to make high-quality raw materials available to local factories.
Source: Future Africa