How to Start Palm Oil Trading Business

Palm oil trading
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Are you considering a trading business to do this year; one that is lucrative and capable of generating you money in millions? Palm oil trading is it!

Facts About Palm Oil

Two types of oil are derived from the oil palm fruit. These are palm oil and palm kernel oil. While palm oil is extracted from the reddish pulp of the palm fruit, palm kernnel oil is derived from the stone-like nut in the middle of the fruit.

Palm oil accounts for about 40% of world’s vegetable oil supply and has versatile utility.  It is a common source of cooking oil in Africa and used for producing food and non-food products, including bar soap, detergent, and cream.

It is also used for biofuel.   As a matter of fact, more than half of Europe’s palm oil import is used for biodiesel. These are just a few of the reasons the demand for palm oil is high.

And in this post, you will learn how to start the business of palm oil trading.

Our ebook covers Palm kernel oil production and trading which is another lucrative business one can engage in and make good money.

Palm Oil Production In Nigeria

The oil palm crop grows in humid tropical conditions and it was originally found in West Africa.  With about 1,250,000 mt per annum production, Nigeria accounts for about 7% of world output and ranks 5th in global palm oil production behind Colombia, Thailand, Malaysia and Indonesia.  Papua New Guinea, Cote de Voire, Cameroon and Ghand also produce the palm oil crops in Africa.

In Nigeria, palm oil producing belt include:

South East    –    Enugu, Imo, Abia and Anambra States

South-South  –   Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Rivers States

South West    –    Ondo, Ekiti, Oyo, Ogun States

Nigeria has the potential of being the world’s highest producer of palm oil but for many years of low investment in the sector.  According to available data, the country is not self sufficient in palm oil production, having an annual demand of 2,500,000 mt.

Thus, the country has import to augment the shortfall.  According to a CBN data, the country need about N60 billion annually to import palm oil in order to meet local consumption.

The sector needs huge private capital investment for the country to ramp up production and meet local demand as well as export the product for foreign exchange earnings.  Areas that opportunities exists include oil palm cultivation (palm plantation) and palm oil milling and refining.

Millers produce the crude palm oil that is the subject of the business ideas we are discussing in this article.

How to Trade in Palm Oil

Produce traders adopt either of, or a combination of two business models when it comes to palm oil trading.  These are Storage and Sale; and what we can call continuous trading (buy and sell).

Store and Sale

Palm oil is a seasonal crop, meaning it has a peak season when it is in abundance and an off season when it is scarce.  During the peak season, the product is cheap and some traders will prefer to buy during this period, store it and then resell during the period of scarcity when the prices of palm oil is high.

At its peak season, a gallon of palm oil can be bought for as low as N15,000 and sold as high as N20,000 or N25,000 in off season.

The period January to May is the peak for palm oil production, while the off season is between June to December.

A lot of factors come to play in storing palm oil and selling when the price is high, so it is important that you take time to study this business before you venture into it.

Continous Buy and Sell Method

A trader using this business model would source his products from the local mills around and in the villages; take the products to the city and sell at profit.

Other Ways of Palm Oil Trading

You are not cut out for the rigorous of sourcing palm oil from around the corner, traveling from town to town to get products to sell?

Don’t worry, you can still benefit from the business of palm oil trading by speculating on the price movement. This involves trading the financial instruments on commodity exchanges as well as its derivatives via the Over the Counter (OTC) market.

Trading futures, options and commodity CFDs through online brokers are some of the ways engage in palm oil trading.

Steps to Starting Palm Oil Trading Business

The focus of this article is on physcal trading of the commodity and here’s how to go about it.

#1. Choose Your Palm Oil Trading Business Model

As we identified in the earlier paragraph, you can either buy the product when production is at its peak and price is low, store it and then resell in offseason when price is high.  Or you can decide to trade through both seasons.

Deciding on either of the ways of doing this product should be preceded by a serious market study.  Identify the challenges, risks and ensure you are able to mitigate the risks.

#2. Identify Sources of Supply

This is very important.  Having a regular source of supply of the products will ensure you are able to meet the demands of your customers at all times.  Traders usually go round the villages and towns to buy off products from local palm oil mills and individuals.

If possible, get the small scale producers you have identified to have an exclusive buying agreement with you so that they sell to only you as long as the contract subsists.

#3. Develop Your Market

You  can either sell your product in the open commodity market or by direct supplies to companies that use them in their production process.   You will make more profit from the later.  However, it may prove to be a bit more difficult getting these companies.

With proper marketing you will be able to get two to three companies that will regularly buy from you.

What companies should prospect for your palm oil? Cosmetics manufacturers, companies that make butter, margerine, soaps, and chemicals like resin, etc.  Identify these companies and market your products to them.  They are always in need and the big palm oil producers are not able to meet their needs.  So, fill in the gap.

#4. Draft Your Business Plan

I cannot over emphasize the need to craft a business plan for enterprise you want to venture into.  It ensures you are able to articulate every aspects of the business: the cost, market, logistics, registration, etc.

Your business plan need not be something fanciful or too technical.  Do it in an easy and simple manner as you can.  And keep it for easy reference as you go along setting up and running your business.

However, if you need to seek funding from external sources such as partners, investors or the banks, then your business plan must be properly done.  In this case, you may have to engage a consultant to help you develop one.

#5. Raise Your Capital

Having carefully done your business plan, you are in a position to know how much you need to start this business.  The business of palm oil trading is scalable, meaning you can start small and grow big as your capacity increases.

From my interaction with people engaged in this business, you can start with the sum of N500,000; N1,000,000 will give you a more comfortable head start.

#6. Register Your Business

Registering your business comes with a lot of benefits.  And more so in palm oil trading it is particularly beneficial if you will be supplying products to companies.  A simple business name registration will serve you adequately as a small business.

Business registration in Nigeria is done at the Corporate Affairs Commission (CAC) and you can this online all by yourself.

#7. Set Up Storage Facility

This is very important if you are adopting the store and sell business model.  Even if you are just buying and selling outrightly, you will still need a place to keep your product before taking it to the market.  A lock up shop or a clean safe place in your compound will serve you well.

#8. Market Your Product

You are not in business if you do not sell.  Therefore, part of your market development efforts should be directed at selling.

There are different channels you can use to promote and generate sales.  Some of these are: words of mouth, social media engagement, online ads, etc.  Seek and belong to relevant trade association that provides opportunities for networking as well as trade referals.

Create a website or youtube channel and load it with content relevant to your business.  Good content will help you drive engagement and therefore generate leads.

Final Words

The business of palm oil trading is an acient one.  However it bacame popular as a major product of international trade for two reasons.  The abolition of slave trade at the turn of the century and the industrial revolution in England.

As palm oil became a major lubricant for the machines in British factories, it also became the major commodity for the slave ships which hitherto were taking slaves fro Africa to Europe.

Today, palm oil has not diminished in importance.  It’s domestic and industrial applications continue to grow, hence the increasing demand for the product.

Therefore, the business of buying and selling palm oil will remain evergreen.

There are also opportunities in the oil palm value chain.  This include oil palm cultivation (plantation), palm oil milling and palm crude oil extraction, refining and fractionation.

Starting businesses in these areas can be capital intensive and requires investment in expensive machines. Major players in this area in Nigeria include Presco Plc and Okomu Oil Palm Plc.

Contact us should you be willing to go into palm oil trading or engage in any of the value chain in oil palm production and need guidance.  Our team of business advisers are here to work with you for a small fee.

Buchi creates content and leads the Team at Kobotalk Management Services; a business development and investment consultancy firm. He provides strategic advisory to help SME's, small business owners and HNI's grow profitable business and make informed investing decisions.

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