SAMCHIZ OIL MILL

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OCTOBER 2019

SAMCHIZ OIL MILL

STATEMENT OF CONFIDENTIALITY AND NON-DISCLOSURE

This document contains proprietary and confidential information. All data submitted to you is provided in reliance upon its consent not to use or disclose.

SAMCHIZ OIL MILL

VISSION: DELIVERY QUALITY SERVICES TO THE SOCIETY AT LARGE.

MISSION: CREATING AN OUTSTANDING SERVICES IN THE AGRO-WORLD

SCOPE: SOUHT EAST OPERATIONS

VALUE: LEADERSHIP, EXCELLENCE, INNOVATION AND QUALITY

SAMCHIZ OIL MILL

Executive Summary

This feasibility report makes a case for the establishment of small scale oil palm processing oil (the Mill) in Abia State, Ohiafa LGA. 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, labor 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 N5, 000,000 to be committed to establishing the Mill in the first year, the net cash flow from the third to the three year of operation are N3, 459,000, N22,857,000, N46,755,000.

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.

SAMCHIZ OIL MILL

Table of content

Statement of confidentiality

Vision, Mission and Values

Table of content

Cover letter

Executive Summary

1. OPPORTUNITYDemand for palm oil and palm kernel oilAbundance of palm treesAvailability of cheap laborIndigenized machinery technologyVast expansion potentials

2 TECHNICAL DETAILSProcurement of palm fruits and palm kernelThe Palm oil MillPalm Kernel Oil ExtractionMarketing of Finished Products2.5 Organization2.6. Statutory Requirements

3. OPERATING REQUIREMENTSTransportation FacilitationLocation AdvantageLand RequirementStaff WelfareMaintenance/Fabrication workshop

4. ENVIRONMENTAL IMPACT ASSESSMENT

5. FINANCIAL ANALYSISAnalysis of Operating Cost and Expected Revenue

6. Conclusion

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Appendix

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 treesIII. Availability of cheap labor.IV. Local fabrication of oil palm processing machinery.V. Vast expansion potentials.

Demand for palm oil and palm kernel oilCurrently Nigeria imports CPO and PKO as local supply are inadequate for domestic consumption and manufacturing needs, and as the manufacturing sector continues to grow the likelihood that demand for processed palm produce continue to outstrip supply, in the long term horizon, remains very strong.

Abundance of palm treesNigeria is currently rated as the third largest cultivator of oil palm tree. With growing focus on economic diversification, the likelihood is that more improved oil palm estates would be developed. Growing cultivation of improved oil palm species guarantees adequate palm fruits and kernel for the proposed Mill.

Availability of cheap laborSmall scale oil palm milling is largely labor intensive, and given the high level of youth unemployment (currently 37 percent for Nigeria), it is possible and easy to recruit a stable youthful workforce that would not be difficult to motivate and retain.

Indigenized machinery technologyAll components of the CPO and PKO mills are fabricated locally and there are readily available parts and spares. The Mill would readily build capacity for fabricating and innovating its machineries in less than 12 months of operation.

Vast expansion potentialsOil palm milling opens opportunities for manufacture of further refined products, and backward progression to establishment of oil palm plantation. Moreover, the

SAMCHIZ OIL MILL

technology for producing PKO is same as for processing groundnut oil, coconut oil, and so on, which makes diversification very easy.

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2 TECHNICAL DETAILSThis 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.

Procurement of palm fruits and palm kernelProcurement of oil palm fruits and palm kernel nuts would be effected directly from open markets by designated officers, through accredited suppliers/contractors who are issued LPOs , and from any other person who may wish to bring the produce to factory for sale. The Mill’s quality assurance unit must put in place simplified tests mechanisms to grading and pricing procured produce to ensure standardization and value-for-money. Both fruit bunches (FBs) and free from bunches (FFBs) should be procured. The FBs are threshed manually using contract/causal workers to obtain FFBs. The procured kernel are dried appropriately and prepared for cracking.

The Palm oil MillThe palm oil milling process is summarized in Table 1 and illustrated further in Appendix 1. The first step is sterilization (boiling). The boiled fruits are conveyed to the digester. The digested material is then pressed to separate CPO from the fiber and kernel. The CPO is thereafter moved to the purifier (clarifier), while the fiber is separated from the kernel. The kernel obtained from oil milling is dried alongside the directly procured kernel. The dried kernel is cracked and the shell separated using a screen and fan extractor. The fiber is covered for re-pressing after some days to obtain technical palm oil (TPO) that is more suitable for production of soap.

Table 1: Palm Oil Processing Unit OperationsUnit operation

Purpose

1. Fruitfermentation

To loosen fruit base from spikelets and to allow ripening processes to abate

2. Bunch chopping

To facilitate manual removal of fruit

3. Fruit sorting To remove and sort fruit from spikelets4. Fruit boiling To sterilize and stop enzymatic spoilage, coagulate protein and

exposemicroscopic oil cells

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5 Fruit digestion

To rupture oil-bearing cells to allow oil flow during extraction while separating fibrefrom nuts

6 Mash pressing To release fluid palm oil using applied pressure on ruptured cellular contents

7 Oil purification

To boil mixture of oil and water to remove water-soluble gums and resins in theoil, dry decanted oil by further heating

8 Fibre-nut To separate de-oiled fibre from palm nuts.

separation9 Second

PressingTo recover residual oil for use as soap stock

1 Nut drying To sundry 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 50 kg FFB/hr, and 500kg of FFB/day. But an average milling rate of 1000kg of FFB/day (50 percent of installed capacity) is assumed, which sum up to 300,000kg of FFB for a working year. The average milling rate of 1000kg/day should yield approximately 200 liters of crude palm oil and 115 kg of cracked kernel per day. The 300,000 kg of FFBs/year, costing N3.6 million, should yield a minimum of 100,000 liters of CPO (valued at N16 million), and 33,600 kg of cracked kernel (valued at N2.1million). Basically, palm fruits worth N3.6million will yield N11 million (that is N11million worth of palm oil and N2.2million 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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Table 2: Basic Input-Output Matrix of the Palm Oil MillFFB, Capacity, Unit

Price,Value

CPO, Output, Price, Value

Cracked Kernel

Average Milling Capacity

Price @ Kg (N)

Value (Nm)

CPO in Liters

Price @ Litre(N)

Value (Nm)

Output (in Kg)

Price @kg (N)

Value (Nm)

Working Day

2,500 kg 12 0.03 500 160 0.08 280 kg 62 0.017

Working Year(300 days)

750,000kg 9.0 150,000

24.0 84,000 5.21

Palm Kernel Oil ExtractionThe kernel oil extraction process has four main steps as summarized in Table 3 and illustrated further in Appendix 2. The first step is to remove all foreign materials from the kernel both manually and using vibrator screens. The second step is to pass the kernel on a conveyor mat through an electric toaster. The toasted kernel is then mashed in an extractor to release crude kernel oil. Further extraction is achieved when the cake is pressed. The kernel oil is then purified/clarified and stored, while the cake is bagged. It is important to note that extraction success rate for PKO is almost 100 percent as palm kernel does not contain water. However, the electrical energy required for PKO extraction is much higher 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.

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Table 3: Kernel Oil Processing Unit OperationProcess DescriptionKernel pre-treatment The feed kernel is cleaned of foreign materials, both

manually and usingvibrating screens.

Toasting Kernel toasted at 104-110°C.to break the oil laden cellsOil Extraction Kernel is mashed to extract oilScrew-pressing Expelled oil is drained and the de-oiled cake dischargedOil clarification Solid impurities and fines removed and cake bagged

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.

Marketing of Finished ProductsThere is ready market for CPO, PKO, and PKC. Beginning from the construction phase, Management of the Mill should commence scouting for supply orders from potential buyers within Nigeria. The Mill should open a robust website where information on its activities and contacts are publicized and linked to globally known supply/procurement websites. The expectation is that with competitive prices, the Mill will have no problem selling its finished produce.

2.5 OrganizationThe 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

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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.

Figure 1: Organization Chart of Proposed Oil Palm Mill

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Table 5: Other Employees of the MillUnit Number QualificationsPalm oil 4 SSCE/OND certificate holdersKernel oil 2 SSCE/OND certificate holdersTechnical/Maintenance

5 SSCE/OND certificate holders (2 specializing on electrical and 3 on mechanical/fabrication)

Quality Control 1 SSCE/OND certificate holdersGeneral Admin 8 4 Securitypersonnel, 1 procurement

officer/Accountant(supervisor), 1 marketing officer/Secretary, and 2 drivers

Total 20

2.6. Statutory RequirementsThe Mill will need to satisfy the registration/certification requirements of the National Agency for Food and Drug Administration and Control (NAFDAC) and the Standard Organization of Nigeria (SON). There are equally permits and approvals to be obtained from other State and Federal Ministries, Agencies and Departments (MDAs) and the Local Government Council. The usual practice is that the relevant agencies would issue demand notices to the Mill, and there will be opportunity to negotiate. Registering with the relevant oil palm millers’/marketers’ associations would enhance access to critical information that would make doing business much easier for the Mill. Beyond the official certification and registration requirements, effective and efficient functioning of the Mill calls for excellent non-formal relationships with key government officials, political leaders, and community leaders. Of critical importance is friendship with officials of relevant public electricity supply agency to ensure adequate electricity supply to the Mill and avail the Mill information on timing of electricity supply, to achieve higher proportion of output is produced when public power supply is available.

3. OPERATING REQUIREMENTSThe 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

Transportation FacilitationTransport of procured fruits and kernel from different markets and buying points would require a minimum of two DYNA pick-up trucks. It is also essential to have a utility car to serve administrative and public relations needs.

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Locational Advantage

Locating the Mill in Abia State around oboro Ohiafa LGA zone ease access to palm fruits and kernel nuts from the community where quantities of palm fruits and kernel nuts are sold on bi-weekly bases. Equally, a viable oil palm mill located in the local government would make better business for regular vendors who move oil palm from destinations in rural areas and the South East States.

Land RequirementTo allow for future expansion and prevent the need for relocation in the future (which can be very costly), a minimum of 600 sq meters is required for the factory at this stage.

Staff WelfareIt is of strategic security and production facilitation importance to have staff quarters for accommodating as many of the operating staff and supervisors as possible. Equally giving the employees a working lunch work will improve working efficiency and boost job satisfaction. First aid boxes would be provided, and sick employees would be allowed to take a few days off for treatment.

Maintenance/Fabrication workshopAn equipped maintenance/fabrication workshop will reduce downtime due to machinery malfunctioning and promote process innovation and re-engineering. To ease capacity building, it is recommended that the Mill maintains a service contract with the machine fabricator/supplier for at least one year.

4. ENVIRONMENTAL IMPACTAn 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.

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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.

5. FINANCIAL ANALYSISTwo aspects of financial analysis is considered; first, is analysis of the monthly operating cost and expected revenue, and second the annual profitability projections for three years (2019 – 2022).

Analysis of Operating Cost and Expected RevenueAs indicated in Table 6, it is estimated that the Mill will require a total monthly operating cost outlay of two million naira (N2, 000,000) only. The expected total monthly revenue from sales is eight million, five hundred and sixty two thousand, five hundred naira (N8, 562,500) only. This is composed of five million, six hundred and twenty five thousand naira (N5,625,000) only for PKO (65.70 percent), two million naira (N2,000,000) only for CPO, and nine hundred and thirty seven thousand, five hundred naira (N937,500) only from PKC.

Table 6: Estimated Monthly Operating Cost and Expected RevenueMonthly Operating Cost Monthly Revenue ExpectationProcurement of

palmfruits

62,500kg @N12.00

N750,000 Value of CPO produced per month12,500 liters @ N160

2,000,000

Procurement ofkernelnuts 55,500kg

@62

N750,000 Value of PKO produced per month 25,000 liters @ N225

5,625,000

Cost of Raw Materials 2,500,000 Value of PKC produced per month37,500kg @ N25

937,500

General Manager N50,0002 Supervisors/Foremen

@N30,000

N60,000

2 workmen operatives@ N25, 000.

N50,000

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Causal Labor N30,000Wages & Salaries 190,000Fuelling & Lubricants @ N20,000for 25 working days

N500,000

Machine Maintenance @ N10,000for 25 days

N250,000

Fuelling & maintenance of motor

N300,000

6.

CONCLUSIONThe 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 N5,000,000, the Mill will expectedly have a payback period of three years, and it was projected that net cash flow at the end of the three 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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Land 800,000vehicles @ N10,000 for 30 daysMiscellaneous expenses N100,000Other operating costs 100,000Total Monthly Operating Cost Outlay

1,600,000

Total for a startcapital cost

2,400,000

Cumulative 5,000,000 Balance 8,562,500

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