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Uwem Essia
uwemessia@yahoo.co.uk
10/1/2013
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Executive Summary
This feasibility report makes a case for the establishment of small scale oil palm processing
oil (the Mill) in Akwa Ibom State along Calabar-Itu road, and in-between Mbak Atai and the
Head Bridge. The Mill will use palm fruits and palm kernel nuts to produce crude palm oil
(CPO), palm kernel oil (PKO), and palm kernel cake (PKC). The case for feasibility of the
Mill is founded on the following findings:
1. Excellent Demand Prospects for CPO, PKO, and PKC; there is supply shortage for
these products, and domestic demand is currently augmented by imports.
2. Availability of inputs; oil palm produce are generally available, the technology for
fabricating oil palm processing mills are available locally, labour is generally cheap,
and locating the Mill in the area identified will ease access to raw materials.
3. Oil palm milling open opportunities to establishing plantations, and producing further
refined produce in the near future.
4. Profitability analyses indicate a payback period of three years. Given a venture
capital of N65,070,000 to be committed to establishing the Mill in the first year, the
net cash flow from the third to the seventh year of operation are N3,459,000,
N22,857,000, N46,755,000, N70,653,000, and N94,551,000 respectively.
5. Environmental impact assessment indicated very minimal negative impact of the
factories operation as all solid wastes generated from oil palm milling are recyclable.
The positive impact of the Mill on the immediate operational environment and the
economy include high quality finished products, job creation, poverty alleviation, and
development of the oil palm processing technology.
The following key operational requirements were indentified for success and sustainability of
the Mill:
• Satisfying the registration/certification requirements of NAFDAC and SON, and
obtaining relevant permits and approvals of various Federal and State (MDAs) and
the Local Government Council.
• Achieving value-for-money in procurement of oil palm fruits and palm kernel nuts,
and effective liaison with PHCN to optimize the utilization of public power supply for
milling.
• Ability to adjust hours of production to march availability of public power supply will
be enhanced if the workers are quartered within or close to the Mill. Equally a
working meal for the staff will promote their effectiveness and render them more
responsive to flexible working hours.
• An effective and proactive maintenance/fabrication unit is necessary for reducing
downtimes, continuing process innovation, and extending the machinery capacity to
meet growing demand. A service contract with the machine suppliers during the first
year of operation is recommended to enhance capacity building for staff of the unit.
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TABLE OF CONTENT
Executive Summary
1. OPPORTUNITY
1.1. Demand for palm oil and palm kernel oil
1.2. Abundance of palm trees
1.3. Availability of cheap labor
1.4. Indigenized machinery technology
1.5. Vast expansion potentials
2 TECHNICAL DETAILS
2.1. Procurement of palm fruits and palm kernel
2.2. The Palm oil Mill
2.3. Palm Kernel Oil Extraction
2.4. Marketing of Finished Products
2.5 Organization
2.6. Statutory Requirements
3. OPERATING REQUIREMENTS
3.1. Transportation Facilitation
3.2. Locational Advantage
3.3. Land Requirement
3.4. Staff Welfare
3.5. Maintenance/Fabrication workshop
5. FINANCIAL ANALYSIS
5.1. Analysis of Operating Cost and Expected Revenue
5.2. Determining the Venture Capital
5.3. Annual Financial Projections (2014 – 2020)
6. CONCLUSION
APPENDICES
Appendix I: Flow Chart for the Palm Oil Mill
Appendix II: Detailed Cost Estimate for the Palm Oil Mill
Appendix III: Flow Chart for the Palm Kernel Oil Mill
Appendix IV: Detailed Cost Estimate for the Palm Kernel Oil
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1. OPPORTUNITY
The economic opportunity that makes establishment of a small scale oil palm mill for
production of crude palm oil (CPO), palm kernel oil (PKO), and palm kernel cake (PKC)
arises from four main considerations, as follows:
I. Growing demand for CPO, PKO, and PKC.
II. Abundance of palm trees
III. Availability of cheap labor.
IV. Local fabrication of oil palm processing machinery.
V. Vast expansion potentials.
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2 TECHNICAL DETAILS
This technical detail for oil palm processing is discussed here under seven sub-headings,
namely; procurement of oil palm fruits and kernel, crude palm oil mill, palm kernel oil mill,
operating requirement, marketing of finished products, organization, and statutory
requirements.
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separation
9 Second Pressing To recover residual oil for use as soap stock
10 Nut drying To sun dry nuts for later cracking
Table 2 presents the crude input-output matrix of the palm oil milling process, taking into
consideration only the palm fruits (inputs) and the output (CPO and kernel nuts) only. A
working day of 10 hours (hrs) is assumed. It is also assumed that a working year has 300
working days. The remaining 65 days of the year are left out to account for possible
downtime due to machine malfunctioning, holidays, and so on.
As indicated in Appendix 1, the palm oil mill proposed has capacity for milling 500 kg
FFB/hr, and 5,000kg of FFB/day. But an average milling rate of 2,500kg of FFB/day (50
percent of installed capacity) is assumed, which sum up to 750,000kg of FFB for a working
year. The average milling rate of 2,500kg/day should yield approximately 500 liters of crude
palm oil and 280 kg of cracked kernel per day. The 750,000 kg of FFBs/year, costing N9
million, should yield a minimum of 150,000 liters of CPO (valued at N24 million), and 84,000
kg of cracked kernel (valued at N5.21million). Basically, palm fruits worth N9million will yield
N29.21 million (that is N24million worth of palm oil and N5.21million worth of cracked palm
kernel. An extraction success rate of 85 percent is assumed to account for the fact that
procured fruits will include a substantial proportion of low yielding local palm fruit species.
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because of the high temperature required for toasting. The palm oil mill can be run with a
50KVA electrical generator, while the kernel oil mill requires a 250KVA generator.
The crude input-output matrix of the kernel oil processing unit is summarized in Table 4.
The kernel oil mill has an installed capacity of 500kg kernel/hr, which amounts to 5,000kg
per 10 hours working day. As was down for palm oil milling, an average milling rate of
2,500kg/day (and 750,000kg/year) is assumed. Kernel is currently valued at N62 per kg,
which amount to about N160,000 worth of kernel milled per working day, and N41.29million
worth of kernel milled per year. The daily output rates for PKO and PKC are 1,000 liters and
1,500kg respectively. This is based on the assumed ratio of 40 percent PKO and 60 percent
PKC. PKC is currently sold for N225 per liter and PKC N25 per kg. The value of daily
outputs of PKO and PKC are about N230,000 and N38,000 respectively. The yearly value of
outputs of PKO and PKC are N67.5million and N11.25million respectively. Thus, palm
kernel procured for N41.29million in a year yields N78.75million worth of PKO and PKC.
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2.5 Organization
The organizational proposed for the Mill is as shown in Figure 1. The Mill should be
registered as a limited liability company having a Board of Directors headed by a
Chairperson. The General Manager (GM) oversees the day-to-day operation, and chairs the
Management Committee, composed of the two foremen, head quality control, head general
admin., and procurement officer/accountant. The list of other employees, as proposed, are
in Table 5; palm oil processing should have 4, kernel oil processing 2, quality control 1,
maintenance/fabrication 5, and general administration 8. The minimum qualification for all
employees is SSSCE or it equivalent. The company would as well hire the services of daily
paid/causal workers for threshing and selection of FBs and kernels, and loading/offloading
as it becomes necessary from time to time. The workforce can also be enriched with the
services of National Youth Service Corp (NYSC) members with relevant training and
student’s on industrial attachment and internship.
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3. OPERATING REQUIREMENTS
The major operating cost items for both mills are listed and explained briefly in this section,
as follows: transportation facilitation; locational advantages; land requirement; supply of
water and electricity; and establishment of the maintenance/fabrication workshop
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quantities of palm fruits and kernel nuts are sold on bi-weekly bases. Equally, a viable oil
palm mill located along Calabar-Itu road would make better business for regular vendors
who move oil palm from destinations in Cross River State for sale in Akwa Ibom and the
South East States.
4. ENVIRONMENTAL IMPACT
An average annual Milling rate of 2,500 kg (FFB)/day or approximately 750,000 kg (FFB)
processed per year generates 262,500 kg of empty fruit bunches, 168,750 kg of oil-pressed
fibers, and 131,250kg of palm kernel nuts (65,625 kg/year shell). Also, 750,000kg of kernel
nuts should yield approximately 375,000kg of shell. These materials have economic uses
and should more appropriately be referred to as by-products rather than waste products. All
three are useable as fuel, The palm kernel shell can be used to fill potholes around the
factory premises. Boiler ash is recyclable as fertilizer and factory floor cleaning agent. Wood
consumption from the environment would be relatively small due to the recycled by-
products. Accordingly, impact on the local tree population would be minimal. The Mill will
however provide ready market for palm fruits and kernel from the local environment, while
as well providing jobs.
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5. FINANCIAL ANALYSIS
Two aspects of financial analysis is considered; first, is analysis of the monthly operating
cost and expected revenue, and second the annual profitability projections for seven years
(2014 – 2020).
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Table 7 indicates that given a fixed capital cost of fifty million, seven hundred and thirty five
thousand naira (N50,735,000) only, the monthly . As noted earlier, once the fixed capital
items are provided, the entrepreneur needs to provide the monthly operating cost of six
million, five hundred and seventy one thousand naira for the first month of operation only,
and successively lesser amount for another three months. The monthly operating cost
reduces progressively from N6,571,000 in Month 1 to N596,500 in Month 4. The adding the
monthly operating cost for the four successive months to the fixed capital gives a total
working capital of sixty five million, and seventy thousand naira (N65,070,000) only.
Table 7: Determination of the Venture Capital
Fixed Capital Monthly Operating Expenses Venture Capital
N50,735,000 Month 1 Month 2 Month 3 Month 4 N50,735,000
Operating Cost N6,571,000 - N1,991,500 - N1,991,500 -N1,991,500 6,571,000
Operating Cost N4,579,500 - N1,991,500 -N1,991,500 N4,579,500
Operating Cost N2,588,000 -N1,991,500 N2,588,000
Operating Cost N596,500 N596,500
TOTAL VENTURE CAPITAL N65,070,000
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The total cost outlay (cost of fixed capital + aggregate operating cost) is one hundred and
thirty six million, eighty seven thousand naira (N136,087,000) only. Expected total revenue
for the year is one hundred and two million, seven hundred and fifty thousand naira
(N102,750,000) only, computed as value of monthly sales (N8,562,500) multiplied by 12.
The net cash flow for 2014 is minus thirty three million, three hundred and thirty seven
thousand naira (-N33,337,000) only. The second year equally has a negative balance of
fourteen million nine hundred and thirty nine thousand naira (-N14,939,000) only. The Mill
has positive net cash flow from the third year onwards. A payback period of three years
makes investment in the Mill very attractive.
Table 8: Annual Financial Projections for 2014 – 2020 (in ‘000 Naira)
Items\Year 2014 2015 2016 2017 2018 2019 2020
Opening Balance 0 33,337 14,939 - 3,459 -22,857 -46,755 - 70,653
Land (for minimum of 10,000 - - - - - -
3,000sq m)
Palm oil Mill Machinery 3,630 - - - - - -
Kernel Oil Mill Machinery 3,870 - - - - - -
50 KVA Generator for 1,535 - - - - - -
Palm oil Mill
250 KVA Generator for 3.100 - - - - - -
Kernel Oil Mill
Buildings (Factory, office 20,000 4,000 4,000 4,000 - - -
block, canteen, staff
quarters, etc.
Borehole & Overhead 600 - - - - - -
Tank
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6. CONCLUSION
The proposed small scale oil palm mill should produce crude palm oil (CPO), palm kernel oil
(PKO), and palm kernel cake (PKC). It is assumed that the raw materials – palm fruits and
palm kernel nuts – are available in adequate quantities to sustain the proposed mill. It is
equally assumed that there are ready markets for the CPO, PKO, and PKC. But sustained
success calls for sound management, commitment to meeting the relevant statutory
requirements, and maintaining sound working relationships with the community members
and relevant public agencies, especially PHCN.
The financial prospect of the proposed Mill was generally impressive. The estimated venture
capital for the Mill was estimated at N65,070,000, the Mill will expectedly have a payback
period of three years, and it was projected that net cash flow at the end of the seventh year
of operation would be N94,551.
The environmental impact assessment indicated very minimal negative impact on the
environment as all solid wastes produced in small scale oil palm milling are recyclable. It is
therefore strongly recommended that the entrepreneur commit takes up the opportunities
offered by small scale oil palm milling by establishing the Mill as prescribed.
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