Nigerian start-up company Releaf – founded by Ikenna Nzewi (Yale graduate, ex-Bain) and Uzo Ayogu (Duke graduate, ex-GE) – has developed equipment and software to make the oil palm value chain more efficient and profitable. The company recently raised $2.7 million in seed funding from investors, including Samurai Incubate Africa, Future Africa and Consonance Investment Managers. Here’s how the company is seizing an opportunity in the oil palm industry.
The opportunity: local palm kernel oil production not meeting demand
Palm kernel oil is extracted from the fruit of the oil palm tree. It is an essential raw material for the manufacturing of cosmetics and is also used for commercial cooking. In the 1960s, Nigeria was the world’s largest palm oil producer and controlled nearly 43% of the global market. By 2018, the country’s competitive position had shrunk to the point where it produced less than 2% of total global output. Today, the market is lead by Malaysian and Indonesian producers.
The Nigerian oil palm industry is fragmented and dominated by numerous small-scale farmers who are responsible for 80% of total production. These are farmers who cultivate small farm plots of five to 10 hectares. The challenge with this model is that small-scale oil palm farmers use processing techniques that are outdated, slow and inefficient, leading to poor quality raw material for factories further down the value chain.
The result is that Nigeria has gone from a global exporter to a net importer of palm oil. Nigeria’s palm oil deficit represents more than 20% of total production and, despite the efforts of palm oil majors like Okomu Oil and Presco, the market is still so large that it creates a premium pricing opportunity for new players. The supply deficit within the sector and growing demand from Nigeria’s population are signals there is strong growth ahead for the industry.
The challenge: inefficient palm kernel processing
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. As a result, food factories are unable to purchase these raw materials and operate significantly under capacity.
On the cheap end of the spectrum, farmers could manually and individually select, grade and crack palm nuts with up to 90% accuracy. The problem with this approach is that it is extremely slow and produces very little output for the factories.
In some cases, local cracking equipment can do the job for about $1,000. However, these de-shellers can waste up to a quarter of the farmer’s original output because of their poor efficiency.
Finally, for bigger mills run by large companies, imported de-shelling systems – which can do volumes of up to 720 metric tonnes a week – are available but cost over $350,000 to purchase and are able to de-shell with only about 60% accuracy. They’re designed for the plantation variety of oil palm but are ineffective for smallholder palm because it has a much thicker shell.
The solution: equipment and software for improved palm kernel oil supply
Releaf has developed a machine, called Kraken, 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. Releaf’s business also has a software component that connects the company to more than 2,000 smallholder farmers, ensuring consistent, large-scale supply.
Releaf aims to change the way the oil palm value chain works. With its de-shelling technology and streamlined sourcing process, its value proposition is twofold. For the farmers, it acts as a consistent off-taker for palm nuts by taking them from the farmers as soon as they have harvested. By working with Releaf, smallholder farmers can boost their income by up to five times. And for the vegetable oil factories, Releaf guarantees a steady supply of high-quality palm kernel oil that they would otherwise be unable to source directly from the farmers.