A Palm Oil Mill in Oyo State

A Draft Proposal for a Private Venture

Prepared by:
Jeffrey H. Vogel, Ph.D.

Prepared for:
The Executive Governor of Oyo State
Alhaji (Dr.) Lam Adesina

Through the Commissioner for Agriculture

Chief Pekun Adesokan

12 January 2002
Executive Summary
We are proposing to develop a small-to-medium scale palm oil plantation and
mill in Oyo State, Nigeria. The vision includes a 1000 hectare (2500 acre)
plantation of Tenera-type hybrid palm nut trees, planted approximately 150
trees per hectare (ha). These trees, when mature, should produce between 8
and 10 million kg of fresh fruit bunches (FFB) of palm fruit per year. When
processed, this is expected to yield 1.5-2 million liters of cooking grade palm
oil annually, and will generate roughly from 0.8−1.0 million U.S. per year in
revenue. Most of this income is to remain in Oyo State through direct wages,
other operating expenses, grants to the Good Samaritan Society of Nigeria,
or further investments in local industrial development.

1 Background
1.1 Motivation
On a recent visit to Nigeria, the author had the opportunity to observe
rural women involved in the production of cooking grade palm oil in Oyo
State. After some further investigation, it became clear that the demand for
palm oil in Oyo state must greatly exceed the supply available through these
small-scale village production methods. On returning to the United States, a
committee of those interested in developing and financing this kind of project
formed to study the possibilities. We have come to the conclusion that the
development of a palm oil plantation and mill in Oyo State is economically
viable.
But the deeper motivation for this project comes from the vision of the
Good Samaritan Society of America, and its Nigerian counterpart, to make
a positive impact in the lives of Nigerians living in rural areas. This project
would seek to support that vision through financial support for the Society
in its mission and through the development of jobs for local residents. The
project would also increase the opportunities for interaction between Ameri-
cans involved in the project and the Nigerian people in Oyo State, hopefully
resulting in additional benefits to both groups as they share their lives and
different cultural perspectives.

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1.2 Opportunity
The economic opportunity comes from three main areas: the demand for
palm oil, the availability of palm nut trees and suitable climate, and the
availability of labor. Each will be discussed briefly.
The local demand for palm oil is substantial. It is estimated that for every
five people in Nigeria, perhaps two liters of palm oil or more are consumed
each month for cooking. There are probably probably between 5 and 10
million people living in or near Ibadan, so that possibly 50 million liters of
oil or more are needed to supply this market per year. It is not known how
much of this demand is supplied by local palm oil producers, but it seems
likely that much of this oil must be brought in from outside Oyo state. It has
been reported that, although once a significant exporter of palm oil, Nigeria is
now an importer, and it is possible the some of this demand may be currently
supplied by foreign imports. In any case, it does not seem likely that the
introduction of two million liters per year or less into the local market will
have significant adverse effects on either the existing local producers or the
local wholesale price.
Although only a fraction of the local demand would seem to be met by
locally produced palm oil, there is clearly the potential to produce much
more. Palm nut trees are grown in a number of tropical areas around the
world, but they are native only to the tropical ares of West Africa. In the
vicinity of Ibadan are large numbers of palm nut trees, although it seems that
the fruit is harvested from only a relatively small number of them. Clearly
the local soil and climate is well suited to the palm nut tree, and there seems
to be enough land that is not currently productive that would be suitable for
establishing a plantation.
In addition to a good potential supply of palm fruit and a ready market
for the oil, it is important that there be a good supply of affordable labor.
This clearly is present, as the only requirements are a general education and
a willingness to be trained in the specifics of the plantation care and harvest-
ing or machine operation. There will also be a need for a few management
level people, with advanced skills and background in areas such as agron-
omy, industrial engineering, and perhaps chemical engineering. We expect
to identify Americans supportive of the project who would be interested in
filling some of these positions. Some Nigerians would also be needed fill the
management needs.

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2 Technical Details
There is much work remaining to be done to answer all the technical questions
that need to be addressed. However, research done so far suggests that the
challenges can be met. The technical information supporting this conclusion
is broken down into sections describing the proposals for the plantation, the
mill, distribution & marketing, organization, and statutory requirements.

2.1 Plantation
There are three main varieties of the West African oil palm: Dura, Pisifera,
and Tenera. The Tenera palm produces the highest oil content of the three,
but is actually a hybrid between the Dura and Pisifera. Modern Tenera or
variant hybrids are usually planted when establishing a plantation, due to
the high oil yield. Over 40% of an individual palm fruit, and over 20% of a
fruit bunch from a typical Tenera palm can be extracted as palm oil.
Tree densities as high as 300 trees per hectare have been reported, but it is
generally agreed that approximately 150 trees per hectare is recommended.
The trees typically start producing in the third year after transplantation
from nursery stock, and reach peak production by perhaps the fifth year.
In southeast Asia, where the extensive plantations are all descended from
a small number of transplanted West African palms, trees are generally cut
down and replaced when they reach about twenty years old. However, it is
not clear if that is the best strategy for the local Nigerian climate and soil
conditions.
Once trees reach maturity and produce fruit, 9,000-10,000 kg of fresh
fruit bunches (FFB) per hectare (ha) can be expected from a well-managed
plantation. Assuming Tenera palms and good extraction efficiencies in the
mill, this will yield approximately 2,000 liters of oil/year/ha.
There are a number of technical details that still need to be worked out
with respect to the plantation. These include identifying the appropriate use
of fertilizers (if any), general tree care, ground cover/management, possible
mixing of other crops, pest control, harvesting methods and equipment, and
transport of the harvested bunches. Our intention is to enlist the services of
an expert in oil palm agronomy to settle the final details of the operation of
the plantation.

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2.2 Mill
The capacity of the proposed mill is based on a number of factors:

• availability of capital;

• availability of land;

• availability of equipment;

• production costs per liter;

• anticipated impact on local economy, both positive and negative;

• environmental impact; and

• experience and expertise.

All of these factors have significant uncertainty at this time. Although pro-
duction costs per liter tend to decrease as the size of the mill is increased,
other factors motivate us to consider the medium sized plant that is be-
ing proposed. Theses factors include the availability of capital, the desire
to minimize any possible negative impact on the environment and the local
economy, and the limited experience and expertise of the present group. Due
to these factors, it seems prudent to start more conservatively with the size
mill that is being proposed, and to consider further expansion after demon-
strating initial success.
The proposed mill capacity is targeted in the vicinity of 10,000 kg/hr
of fresh fruit bunches (FFB) of palm fruit. Given the seasonal nature of
the palm fruit harvest in Nigeria, it is expected that the plant will only
operate near capacity for perhaps four months of the year, and at less than
half capacity for the remainder. An annual average of half the maximum
capacity, or 5000 kg FFB/hr processing throughput is estimated.
Although there are a variety of processing methods available, the appro-
priate processing technology is one that produces the highest quality oil with
the highest extraction rate and lowest cost given the available capital. Very
large mills use solvent extraction methods to obtain over 99% of the available
oil from the palm fruit. For the smaller scale plant proposed here, mechanical
methods are used that can extract perhaps 90% of the available oil. At an
average annual throughput rate of 5000 kg (FFB)/hr, this would be expected
to produce about 2 million liters/oil per year.

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 The exact processing details depend on the kind of equipment to be used.
Typical processing steps are as follows.
1. Transport the harvested bunches to the mill with minimum bruising
for processing within 24 hours. This minimizes the fermentation of the
oil, and makes it possible to produce a final product with low (¡3.5%)
free fatty acids.

2. Sterilize/cook the bunches with steam under pressure. The sterilization

destroys the enzymes that cause the oil to ferment.

3. Strip the fruit from the bunches. This will likely be done with a me-
chanical bunch stripper.

4. Process the individual fruit-lets in a digester that releases the oil.

5. Press the oil out of the digested fruit in a mechanical screw press.

6. Remove water, dust, and fibers from the oil by filtering and boiling
and/or using a centrifuge.
In addition to obtaining appropriate equipment for the processing just
described, a facility will be needed. It is estimated that a simple building
of about 300-500 square meters would be sufficient to house the equipment,
and to provide room for both an office and limited storage. Reliable sources
of both water (not necessary potable) and electricity will also be required.
Documentation and record-keeping would be best facilitated with a computer
and printer.
One challenge that will need to be addressed is the handling of by-
products. The primary by-products are listed below, with estimated quanti-
ties based on an average annual throughput rate of 5000 kg (FFB)/hr, or a
total of 10 million kg (FFB) processed per year.
• 3,500,000 kg of empty fruit bunches. Although these can be burned,
they do not typically make a very good fuel, as they have a high water
content. One idea is to chop them up for use as mulch for the palm
trees.

• 2,250,000 kg of oil-pressed fibers. Local producers form these into small

cakes to be used as cooking fuel. With a goal of extracting more oil
from the fruit, the fuel value of the fibrous residue is uncertain.

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 • 1,750,000 kg of palm kernel nuts. Ideally, there will be sufficient capital
and space to process the nuts into palm kernel oil, which accounts for
about 50% of each nut by weight. The 875,000 kg/year of left-over
shells might be sold as animal feed.

In addition, there will likely be a significant quantity of waste water from the
sterilization and other processing steps.

2.3 Distribution & Marketing

Not much research has been invested yet into the plans for distribution of
the palm oil. In general, the local wholesale market is targeted, meaning
primarily people living within 50 km of Ibadan. Traditional distribution
channels and methods will be employed if possible. The market for the palm
kernel oil has not yet been explored.

2.4 Organization
Several important details are yet to be worked out with regard to the orga-
nization of the project. The proposals listed here are preliminary ideas.
The money for start-up capital expenses and initial operating expenses is
expected to be raised from both American and Nigerian investors who sup-
port the project’s goals. An American for-profit corporation, with a Nigerian
affiliate or subsidiary, will be organized with the investors owning shares in
the corporation.
The company will be operated according to international standards for
quality control, documentation and bookkeeping. Although this will proba-
bly require some extra money to be spent hiring someone with these skills,
it is expected that the investment will be worth it in the long run.

2.5 Statutory Requirements

In order for this project to succeed, an excellent relationship with the govern-
ment and community leaders is absolutely essential. Based on the relation-
ships already being developed through the Good Samaritan Society Mission
in Oyo State, we have every reason to expect cooperation and support for a
project such as this. However, details about the kind of support the govern-
ment in Ibadan might be able to supply, and what kinds of incentives might

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be available, need to be worked out. We also need to understand the taxes
that would be applicable to this kind of enterprise.

3 Financial Analysis
This financial analysis is based on very rough estimates, and could change
considerably before the proposal is finalized. The assumptions are that tree
planting could begin right away, and that the mill would become operational
in 2003. Before the trees are fully mature, a smaller amount of nuts could
be bought from local farmers who have mature trees producing fruit now.
When the plantation is fully operational, the desire is to continue to work
with local farmers in addition to processing fruit from the plantation.

Financial Projections
(All estimates in thousands of U.S. dollars)
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010
Capital
Mill Equipment 10 0 0 10 20 30 40 0 0
Building/Shelter 2 0 0 5 5 5 5 5 5
Trees 30 40 50 0 0 0 0 0 0
Misc. (computer, truck, etc.) 5 0 0 5 10 10 10 10 10
Total Capital 47 40 50 20 35 45 55 15 15
Operating Expenses
Palm fruit bunches 3 30 40 30 10 0 0 0 0
Mill operators (5-30) 5 5 5 10 15 20 25 30 30
Plantation workers (10-60) 10 10 15 25 40 60 60 60 60
Management/Engineering 5 5 5 10 10 15 15 20 20
Travel 5 8 8 8 10 10 10 10 10
Plantation (transp., etc.) 2 3 4 5 5 5 5 5 5
Mill (water, electric, etc.) 1 2 2 3 5 5 7 8 10
Maintenance/Repair 0 1 2 2 3 5 5 5 5
Land (Lease) 0 0 0 0 0 0 0 0 0
Taxes 0 0 0 0 0 0 0 0 0
Contributions (TGSSA) 1 6 10 12 16 27 52 104 130
Other 2 2 3 5 5 10 15 20 20
Total Operating Expenses 34 72 94 110 119 157 194 262 290
Annual Income
Palm Oil 5 45 70 90 120 200 400 800 1000
Palm Kernel Oil 0 10 17 22 30 50 100 200 250
Other Income 1 5 8 8 10 15 20 40 50
Total Income 6 60 95 120 160 265 520 1040 1300
Net Income/(Loss) (75) (52) (49) (10) 6 63 271 763 995

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 There are likely to be a number of additional expenses beyond what has
been anticipated above, and as was already stated, some of the numbers
are very rough estimates that are likely to change significantly when more
information is known.
Note that, among the listed expenses, we are proposing to commit ten
percent of all income to go directly to the Good Samaritan Society Mission
Village in Oyo State.

4 Conclusion
Based on the projections above it seems that this project has a very good
chance to be financially successful. More important than the economic op-
portunity, however, are the several important ways in which we envision this
project making a positive impact in the lives of the people of Oyo State.

• We will bring good income to the rural people in Oyo State, improving
the economic well-being of the rural areas.

• We anticipate important positive social impact both through oppor-

tunity for regular employment and through participation in organized
industry. In this regard we wish to include interested Nigerians at every
level of the project, from workers to investors and owners.

• We hope that these factors will lead to reduced population pressure on

the cities, by helping to make rural life more attractive and productive.

We believe we will be able to succeed in each of these regards, and so

bring improved hope and prosperity to the rural people in Oyo State.

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Profile
Jeffrey Vogel is a Principal Engineer working in process development at
Boston Scientific–Scimed, an international manufacturer of medical devices.
Prior to joining Scimed, he spent six years as an Assistant Professor in the
Mechanical Engineering Department at the University of Minnesota. He
received his B.S. and M.S. degrees in Mechanical Engineering from the Uni-
versity of Minnesota, in 1984 and 1986, respectively, and his Ph.D. in Me-
chanical Engineering from Rensselaer (RPI) in 1989. His research interests
are primarily in the areas of manufacturing processes and process modeling,
and he has published over 20 scientific articles in the study of materials and
material processing. He has also been awarded three patents.
In addition to his scientific and engineering experience, Dr. Vogel’s asso-
ciation with the Good Samaritan Society of America and Grace Evangelical
Free Church of Fridley, MN, USA also contribute to his qualification to un-
dertake this project. He serves as an elder at Grace Evangelical Free Church,
and has traveled to Nigeria twice in the past three years as a member of both
the church’s choir and orchestra.

Contact Information
Dr. Vogel may be contacted in any of the following ways:

Jeffrey H. Vogel, Ph.D.

8243 Queen Ave. N.,
Brooklyn Park, MN 55444, U.S.A.
phone: 763-561-1875
e-mail: [email protected]

He can also be reached through the Good Samaritan Society of America:

http:\\www.tgssa.org