Nigerian start-up identifies opportunity in palm oil demand-supply mismatch
In Nigeria, the demand for palm kernel oil – extracted from the fruit of the oil palm tree – is estimated to be double than what local producers can currently supply. Palm oil is used for cooking and it is also an important ingredient in a variety of food and cosmetics products.
Releaf is a Nigerian company, founded in 2017, which identified a business opportunity in this supply-demand mismatch. It has developed equipment and software to make the oil palm value chain more efficient and profitable.
One of the reasons why palm oil supply doesn’t meet demand is because small-scale farmers – who are responsible for 80% of total production – use processing techniques that are outdated, slow and inefficient, leading to poor quality raw material for factories further down the value chain. To extract oil from the kernel, the nut needs to be cracked and de-shelled. Smallholder production rates are low because many still rely on ineffective processes for de-shelling palm nuts, such as rocks and inappropriate hardware. These unproductive processes lead to low-quality palm kernels that are largely unfit as inputs for high-quality vegetable oil manufacturing.
“On the supply side of the market we saw the smallholder farmers were engaged in very rudimentary processes that damage the quality of the vegetable oil,” Ikenna Nzewi, CEO and co-founder of Releaf, explained during a panel discussion at the recent Africa CEO Forum that took place in Abidjan, Côte d’Ivoire. “Vegetable oil is highly demanded in Nigeria. The FMCG [companies] send their trucks to pick up vegetable oil from you and they pay you before they leave … so you are really constrained by the supply side of the market.”
To address this challenge, Releaf has developed a machine that can process any quality of palm nut into high-quality inputs for food factories. According to the company, its machine costs less than half of an imported de-sheller and is significantly more accurate at 95%, ensuring little wastage. It operates 25 times faster than local cracking equipment and 240 times faster than de-shelling by hand.
Nzewi said a key success factor is to ensure palm oil processing factories are located in the right areas: in a productive oil palm growing region, where there is an adequate road network and suppliers of spare parts. To identify these locations, Releaf has developed geospatial technology.
He added it is critical that raw materials are processed as close to the farmers as possible. “It does not make sense to move raw, heavy perishable crops hundreds of kilometres to factories.” Smallholder farmers can also get higher prices for their crops if the logistics costs are reduced.
In 2021, Releaf raised $2.7 million in seed funding from investors, including Samurai Incubate Africa, Future Africa and Consonance Investment Managers.