Dear Startup Doctor,
It is evident that the economy has taken a plunge, and this period has afforded me the opportunity of re-evaluating my financial strategy. I am a lawyer by profession, but I am also a firm believer in economic diversification and the creation of multiple streams of income. I am presently thinking about the Agro sector, in particular, palm oil production. What do you think about such an idea in present-day Nigeria?
Diversification is Good!
I agree with you on the need to have multiple streams of income because it comes with numerous advantages. I have been preaching this sermon for many years now. When you create multiple streams of income, you can make much more money than what you currently earn from your full-time job and also find security during an economic downturn. Creating an alternative source of income in the event of a financial turmoil such as Covid-19 is definitively a smart move.
However, you cannot diversify into a new business sector without carrying out in-depth research on your industry of interest. Please, note that the right business for you is not just the one that makes money. It is the one you understand, have the resources to invest in and will provide a timely return on your investment.
Since your interest is leaning toward agriculture, you need to be sure you fully understand how this sector works. A great way to start would be to arm yourself with the knowledge of the cost requirement, requisite technical expertise for the business or hire a reliable partner that will ensure the smooth running of the operation without your full involvement.
Viability of Agro Business in Nigeria
Oil palm production is a long term investment with a gestation period of four to five years. However, the gestation period depends on the quality and type of seedling. However, it keeps on giving value throughout its life cycle of over three decades. But first, before we dive deeper into this conversation, you need to check how realistic it would be for you as a practising lawyer to get into that line of business. Combining the long hours required in legal practice with running an Oil palm business, especially if you are thinking about the entire value-chain might be highly demanding. However, this should not stop you from starting this business. I believe that where there is a will, you will find a way!
As at today, Indonesia is the largest palm oil-producing country in the world with Malaysia and Thailand closely following, with Nigeria coming as the fifth in world production with 1.5percent metric tons of the world’s output. In Nigeria, the oil palm is in high demand and will always be since it is used daily in almost every home for nearly every meal. According to the World growth index, palm oil production globally is expected to rise by 32percent by 2020. The oil palm is nature’s blessing in terms of its economic viability and versatility. Oil Palm is not only cut out for domestic use. It is also an active input to such as industrial products like beauty, pharmaceutical, renewable energy, and food industries also buy and use it in large quantities as one of the significant ingredients for their production. There are also export opportunities in the red oil, bleached oil, and kennels to international markets. Needless to say that this is one business you can make a crazy profit in if you are patient.
A Bloomberg report, states that Nigeria plans to invest $500 million to boost palm oil production which shows that the government is serious about increasing the volume of oil production locally to decrease how much dollars the country spends yearly to import it into Nigeria. According to the report, the government said, “Our policy objectives over eight years (between 2019 and 2027) will see that we locally produce 100percent of local crude palm oil demand by 2027.” This statement clearly shows that investing in oil production is a step in the right direction. Especially as the Federal Government is also heavily leaning towards economic diversification by strengthening the non-oil sector through capacity development, loans, grants, and partnerships.
Oil Production Value Chain
Palm oil production has a relatively long value chain that goes through several phases between land acquisition, preparation, nursery, planting and decline. It starts from the palm tree planting, waiting for the gestation period, which takes upwards of four years to commence increasing and gradual harvest. Then comes the harvesting, processing, storing, packaging and distribution phases. The yield cycle of palm oil can take between three to four years between planting, first harvest and maturity season before it plateaus and declines.
You don’t have to be involved in all these to be able to profit from this sector. You can just pick one that you are comfortable with to begin your investment journey. This statement is premised on the fact that investing in oil palm from the beginning to the end of the value chain, will place more demands on your time, much more than you can spare from your legal practice. If you have the means and human resources and capacity to manage them effectively, you can also hire a trusted and competent Agro consultant to be fully involved.
Benefits of starting an Oil palm business?
1. The versatility of the oil palm assures that every of its product is sellable.
2. Government is favourably disposed to helping with agrarian ventures.
3. Opportunity for exports
4. The demand is insatiable.
5. It has a lifetime yield.
Challenges of the Oil palm business?
- It is capital intensive
- It requires constant care especially during the early years
- It is dependent on heavy rain and sunshine (weather dependent)
- It is vulnerable to bush burning
- It is vulnerable to theft as it is usually in remote and difficult to reach places.
What do you need to start the Oil palm business?
- Trusted source for seedlings (NIFOR is recommended)
- Palm nursery
- An agro consultant and an experienced team and
- A massive dose of patience
Below are the different take-off points you might consider:
- Buy hectares of land.
- Hire an agro consultant to source for seedlings from the trusted source plant and nurture palm trees for you.
- Buy already processed palm oil from producing communities who sell the oil produced from their ancestral palm trees. You can repackage and re-sell to manufacturing companies. This strategy will require that you recruit staff who will help you go to the markets in remote areas and buy from the subsistence producers.
- You can equally buy palm oil processing machine and buy palm nuts from farmers and undertake the processing. This method saves you the hassle of having your plantation, yet gives you control over the production process. Although this might be more work than envisaged, the good thing is that there is hardly any waste in palm nuts. You can re-sell the byproducts of your oil production to augment your production cost.
- Buying the machinery and the human capacity to run it may be financially demanding. If you cannot foot the bill, you can apply for loans and grants such as the NIRSAL Microfinance Loan. Please, write to the Startup Doctor on email@example.com to know more about the training required before you can access this loan. Government is generally favourable to Agro MSMEs. Therefore, my team and I can help you develop a bankable business plan and assist in the grant or loan application. If you can convince the government or banks, they will back your idea.
It is ok to diversify your income source, but you must do it right. Following your interest in palm oil production is a good one and can attract loans and grants from the government. Like I earlier stated, the oil palm business is one that assures continuous yields, especially if you place your expectation horizon for the longer term and not immediate. Remember that oil palm production is not an instant trading outfit. You cannot go wrong if you decide to venture into the oil palm business. It will thrive in the Nigerian market. Just ensure that you set up a structure that can guarantee an efficient and sustainable operation so that it doesn’t distract you from your legal practice. If you need help doing this, our ‘Corporate Structure for Profits and Sustainability’ is the plug you need. In it, you will learn how to build the right system and structure to make your business run even when you are not around.
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To your continued success.
The Startup Doctor