A BUSINESS PLAN FOR AN OIL PALM FRUIT PROCESSING FIRM (EJISU-JUABEN MUNICIPALITY)

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A BUSINESS PLAN FOR AN OIL PALM FRUIT PROCESSING FIRM (EJISU-JUABEN MUNICIPALITY)

CHAPTER ONE

INTRODUCTION

1.1 Background

Palm oil is an edible vegetable oil derived from the mesocarp of the fruit of the oil palm. Palm oil is naturally reddish in colour. Palm kernel oil is also derived from the kernel of the fruit of the oil palm (en.wikipedia.org/wiki/palm_oil, accessed on 16th May, 2014). Palm oil is an important domestic and commercial food and non-food ingredient.

According to the Food and Agriculture Organization (2002), palm oil processing began in Africa thousands of years ago but trade in palm oil at the international level began at the turn of the nineteenth century whiles that of palm kernel oil developed after 1832. The FAO asserts that the establishment of trade in palm oil was mainly due to the Industrial Revolution in Europe.

Ghana was the first country where the British established oil palm plantations in the nineteenth century (Angelluci, 2013), but the oil palm fruit processing industry in Ghana is composed mainly of many small scale processors, using traditional methods for processing and very few large scale processors (FAO, 2002).The industry however has bright future prospects due to the ever increasing industrial and domestic demand for processed oil palm fruit products including palm oil and palm kernel oil. The current population of Ghana is about 25 million based on the 2010 census. What this suggests is a wider market as each person consumes food prepared with palm oil or palm kernel oil or uses a product produced with palm oil or palm kernel oil in everyday life.

The Ministry of Food and Agriculture (2012), revealed that the current production of palm oil stands around 243,852 tons annually but annual requirements is estimated at about 278,852 tons. A deficit of about 35,000 tons are therefore needed to meet the nation’s demand.

At present, Ghana with its 305,758 hectares of area planted and a production of 243,852 tons of palm oil has an internal unmet demand of 35,000 tons. The whole ECOWAS region has an unmet demand of 850,000 tons (MoFA, 2012).

The implication of this low production as against the population and demand of Ghanaian citizens is that, more palm oil of about 35,000 tons have to be imported to supplement local production and satisfy consumers. What is obvious is that importation is very costly to the economy as it competes with the local industries and raises the import bill of government.

Palm Oil is extracted from the mesocarp which in turn can be further refined. The refined oil and fat is used in industrial production of non-dairy creams, ice cream powder, salad additives and fat spread. It is used as substitute in the formulation of soaps, detergents, margarines and baking fats. Palm oil is also a rich source of vitamins A, D and E which are indispensable in the pharmaceutical industry. It is the second most important vegetable oil after soya. The fibre is used in mills (boilers) as fuel and for stuffing car seats and mattresses. The shell of the palm nut is used as fuel and as activated carbon for bleaching purposes. This product is in high demand on the international market (Kyei-Baffour&Manu, 2002).

The kernel is a rich source of lauric acid, a vital ingredient for the soap, cosmetic and confectionary industry. It is also used as feed for animals (i.e. palm kernel cake) (FAO, 2002). What makes the development of palm fruit products more strategic and economically sound is the fact that there exist in Ghana, West Africa, the rest of Africa and the world at large enormous opportunities for palm oil and products processed from it. It is currently estimated that there is an external market for 2.6 million tons of crude oil and allied products from Ghana and the subregion but only 800,000 tons is produced annually in the sub-region (PSI, 2003).

1.2 Problem Statement

Ghana’s oil palm fruit processing industry is composed of many small scale processors using traditional technology that relies solely on manual labour and simple cooking utensils and a few large scale processors (Poku, 2002). Small-scale operations have never able to meet demand requirements, moreover, processing losses are always high since technology used is inefficient.

Much revenue is also lost due to losses that occur during processing as well as improper utilization of end products from processing (Kyei-Baffour and Manu, 2008). Studies have shown that some processing firms are able to use the kernels as fuel in their operations while others use it in the generation of electricity, the fibre is also used to stuff mattresses as well as fuel but many processors are not able to utilize these end products in this manner in order to cut down production cost.

Appropriate marketing strategies and linkages have also not been adopted in marketing the produce. Packaging and standardization has been very poor. The small scale processors usually have their products displayed by the road side and in markets, in used and unattractive plastic bottles or gallons, without labels. It is worth noting that consumers are very much interested in what they consume and who produced it, how and when it was produced as well as its expiry date but products of Ghanaian processors lack these features.

A study conducted by Kyei-Baffour and Manu (2008) revealed that, whiles the international market standards require oil with a Free Fatty Acid (FFA) level of less than 3 per cent, that of Ghanaian processors is between 3-5 per cent. What this suggests is that, Ghanaian producers are not able to meet international market standards hence are not able to enter the competitive global markets to trade their oil.

1.3 Research Questions

This study seeks to answer the following questions:

1. What is the marketing plan for an oil palm fruit processing firm?

2. What is the production and operational plan of an oil palm fruit processing firm?

3. Is oil palm fruit processing financially viable?

4. What is the organizational plan for such a firm?

1.4 Objectives of the Study

The main objective of the study is to design a business plan for the establishment of an oil palm fruit processing firm in the Ejisu-Juaben Municipality of the Ashanti Region of Ghana. The specific objectives are as follows:

1. To examine the production practices of oil palm fruits processing.

2. To examine the market and marketing strategies of oil palm fruits processing.

3. To determine the management and organizational structure for oil palm fruit processing.

4. To determine the costs and benefits and evaluate the financial viability of oil palm fruit processing.

1.5 Justification of the Study

The business plan will be beneficial in that the study seeks to addresses the challenges in the demand requirements of the country through adopting modern technologies in processing oil palm fruits into two main products; palm oil and palm kernel oil in such quantities that are enough to cut down the deficit and reduce the quantity the nation imports, thereby cutting down the cost of importation of palm oil and other associated products.

The plan will also detail appropriate marketing strategies that will enable Ghana’s oil palm fruit products sell more, both in the local and international markets and as well, make it traceable and assess the viability of such a venture in the Ejisu- Juaben Municipality.

The study would also add knowledge to the effective processing methods that minimize processing losses and the proper utilization of the end products of processing the oil palm fruits to the existing knowledge whiles offering knowledge for further academic research.

Moreover, when the plan is implemented it will help the nation reduce the cost of importing oil palm fruits products, thereby reducing the problems of balance of payment deficits.

While serving as a guide to management of the firm in their operations if it is implemented, it will help attract investors, both foreign and local into the industry, if feasible and viable. And finally, the plan will also serve as a means of providing a ready market for farmers of oil palm in the study area and elsewhere in Ghana when implemented.

1.6 Organization of the Study

This study is divided into five chapters. The first chapter deals with the introduction of the study. This is where the problem is stated, research questions, objectives of the study and justification of the study are also stated.

Chapter two reviews the relevant literature on oil palm, oil palm fruit processing, trade in palm oil and palm kernel oil, business planning and investment appraisal techniques.

The third chapter discusses the methodology employed in the study.

Chapter four presents the results and discussions. The various components of the business plan are discussed in detail with our data.

Conclusions and recommendations are provided in Chapter five.

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