Degree
Master of Business Administration
Faculty / School
Faculty of Business Administration (FBA)
Advisor
Dr. Shahid Mir, Assistant Professor, Department of Management
Committee Member 1
Dr. Shahid Mir, Assistant Professor, Institute of Business Administration (IBA), Karachi
Project Type
MBA Research Project
Abstract / Summary
There has been a soaring demand of Edible oil in the global market, which is anticipated to record a Compound Annual Growth Rate of 5.1% to touch a level of around US$ 130.3b by end of 2024. The main contributors to the Edible oils industry are soybean oil and palm oil, which are mainly produced and exported by Argentina, Brazil, Indonesia and Malaysia. One of the leading markets of edible oil in the world is China followed by India, UAE and Pakistan.
In Pakistan, edible oil is considered as one of the most essential commodities of daily usage. During 1947 to 1960 Pakistan was self-sufficient in edible oils. In 1960, started the import of edible oils and since then its import has been on an increasing trend due to lack of research and development, government polices to support farmers and resistance of import lobbies. Pakistan has been persistently and chronically deficient in its production as around 70% of the national requirement of Edible oil are fulfilled by imports. At the moment, Pakistan is one of the largest edible oil importers in the world with the import figures amounting to more than USD 3bn annually, which is imposing huge pressure on foreign exchange reserves being the 2nd highest import bill after energy import. And alone Palm oil contributes 91 percent of the total edible oil imports
In this scenario an initiative has been taken by a public private Joint Venture (Gre-Palm) and IBA to promote the local production of Palm oil in Pakistan. This project is based on a detailed feasibility study on Oil-palm fruit plantation and Crude Palm oil extraction, localized in Pakistan for use in a way that supports the local industry and substitutes a substantial segment of the crude palm oil imports and save a huge portion of foreign exchange.
The objectives of the project include detailed study on Oil-Palm plantation i.e. Oil producing breeds, yield of fruit, environment, labour, land, farming and irrigation techniques; designing the Supply chain for a Palm Oil Extraction plant; developing technical and financial feasibility of a Palm Oil Extraction plant – Land, Labour, Machinery, Utilities etc.; and providing recommendations for future actions based on the outcome of feasibility study.
The project is expected to have manifold benefits in the realm of (1) import substitution, by locally producing different types of Palm oil having a current local demand of around 2.8million tonnes; (2) environment protection by utilizing 95,000 Hectare unused fertile land of Interior Sindh in the farming of oil-palm trees, (3) poverty alleviation by providing small loans to women and poor people in the rural areas to grow oil palm saplings from seeds and sell the saplings to farmers, (4) employment generation for skilled and unskilled workforce when vast area of land will be cultivated with oil palm trees and CPO mills will be installed alongside the plantation (5), promote the halted industrialization in the country by establishing CPO mills,(6) transfer of technology, as when the new plants are set up, our country will eventually be able to replicate and adopt the technology involved in the manufacturing of imported machinery, not only fulfilling the future demands of local industry but also exporting the same to other countries.
The project report is based on financial data and non-financial information obtained from primary and secondary research to create an operational model for Palm oil plantation and extraction in Pakistan. Our research methodology included the literature review, Interviews with experts, field visits, factory visits, Quotations and Comparative Analysis, and review of financial statements of current market players.
Based on our research, visits and interviews it was determined that in Pakistan there are ample opportunities and favorable conditions for growing oil-palm trees. Report findings suggest that Coastal belt of Sindh has proven capability of growing oil-palm trees with a per acre yield comparable to that in major oil palm growing countries due to plenty of fertile land, irrigation water courses, supply of fertilizers, and skilled farmers available in this part of land.
Further regarding the CPO Mill extraction plant, it was concluded that it would be very viable to setup CPO extraction plant as the process is not very complex and the machinery is also easily available from Chinese suppliers. The CPO produced will be sold to the existing Oil refineries which apart from refining other oil products are currently running on imported CPO, therefore locally produced CPO will substitute imported oil which in turn will save a huge amount of foreign exchange. Proposed CPO mill should be installed in the vicinity of oil palm plantations to minimize the cost of transportation and ensure the quality of the CPO produced. The electricity requirement of the CPO mill will be fulfilled by the Solar Power system due to unavailability of Grid electricity in some of the remote areas.
The total proposed project cost is 101 million PKR for a capacity of 1 ton/hr extraction mill with an annual yield of 500 ton CPO for a plantation area of 313 acre. The upfront cost for initiation of the project is Rs. 66.8 million, which will cover land preparation, purchase and planting of palm tree saplings, irrigation equipment and then Rs. 34.6 million will be expensed in year 3 to cover the erection of the CPO mill, purchase and installation of its machinery, and installation of solar power generation. This Rs. 35Mn Investment for the CPO Mill will be self-generated from the operations of the business.
The palm oil project itself is a long term project having a fruitful life of 25 years. As the palm tree starts to bear fruit after 3 year’s age, therefore intercropping would be used to generate revenue of over Rs. 50 million per annum (from 313acre cultivated land) for the interim period and the subsequent years of the project.
The payback period for the project is 3 years with the ROI of 30% in the first year that increases to 134% in the 7th year. This incorporates revenue generated from intercropping and sale of crude palm oil and the initial investment required for both plantation and set up of CPO extraction mill.
Recommended Citation
Akhtar, K., Akhtar, M. N., Khan, S. J., Shah, S. F., Allahwala, Y. J., & Jawed, Z. (2020). Oil-palm plantation and crude palm-oil extraction plant - feasibility study (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-mba/201
