Palm Oil/Dende

Palm Oil/Dende

A newly popular investment option in Brazil is Dende. The main reason is there is plenty of suitable land. We work in a consulting, management, project acquisition, project setup and post-project setup management for our clients.

Client Investment Strategy

Big Lands Brazil has created a fund strategy for accredited investors (or equivalent), companies, and funds seeking long-term, consistent returns based on a conservative business plan in surging market of Brazil. This investment is designed as a trusted option to gain access to the emerging market of Brazil in a safe manner, truly unique in the marketplace. The investment is not designed to be creative in taking on unnecessary risk.

Big Lands Brazil has worked hard to design this investment to be more competitive than the competition. The land we source for our clients has a lower price tag, the planting costs are less because we have strong relationships on the ground. We anticipate that on a large scale plantation US$1500 dollars per acre planted is a reasonable price that an investor will pay the first year. Please contact for more details.

Our Current property and project Offering:

Please contact us for more details.

About Palm

Types of Palm Oil

The oil palm fruit produces two oils, palm oil from the fleshy mesocarp and palm kernel oil from the seed (kernel). Palm oil is used primarily in food products: cooking oil, shortening, margarine, milk fat replacer and cocoa butter substitute. Palm kernel oil is mostly used in the oleochemical industry for making soap, detergent, toiletries and cosmetics.

World production of palm oil is 37 million metric tons (Oil World, 2006). Malaysia and Indonesia account for 86%-91% of global production as of 2009, each holding 42%-46% market share.

Palm oil producing countries include Nigeria, Thailand, Colombia, Papua New Guinea, Ivory Coast, India, Brazil, Malaysia and Indonesia. Brazil holds less than 1% global market share.

Cultivation

Preparation

Several measures to prevent soil degradation and conserve soil fertility are: contour terracing along steep slopes, silt pits help reduce slope length while trapping soil and plant nutrients, pruned fronds placed along the slope minimize soil erosion and fertilizer loss. Hilly forests with slopes greater than 250 are usually left untouched. Depending on soil makeup, additional fertilizer is needed to balance pH. Additional clearing would also add to the cost. Leguminous cover crops fix nitrogen in the sold, recycle organic matter, improve soil structure, keep out weeds, reduce soil compaction and erosion, and promote rainfall acceptance. At least 6 species of leguminous crops are planted for the benefit they provide. Emphasis of proper drainage and water management in coastal plantings prevents over-draining and deterioration of acid sulphate and peat soils.

Nursery

12 month from seedling to transplant in field. The planting arrangement provides 148-156 trees/ha in a closely packed arrangement and standard pitch is 9m center to center.

Harvesting/Collection

In about 24-30 months, the oil palm yields fruit in compact "fresh fruit bunches" (FFB) weighing 10-25 kg with 1000-3000 fruitlets per bunch. Ripe bunches are manually cut using chisel or sickle. These are then collected manually with wheelbarrow or mechanically using tractor-mounted grabber. The tree will continue to be productive for 20-30 years, ensuring a consistent supply of oils.

Extraction

FFB are sent to mill for extraction within 24 hours of harvest to maintain freshness and quality. FFB are steamed under high pressure to sterilize, loosen and soften before being stripped from the stalks and mechanically pressed to extract oil. No solvents are used.

Refining

Extracted oil is called Crude Palm Oil (CPO) and is sent to a refinery to remove impurities, colors and odors. Refining also separates solid (stearin) and liquid (olein) fractions for a wide range of uses.

Sustainability: High Positive Energy Balance

Oil palm produces 3.66 tons/ha/year, up to 10X more oil per unit area than soybean, rape or sunflower (Oil World Annual 2006). Oil palm (palm and palm kernel) produces more than 34% of the world’s eight major vegetable oils on less than 5% of the total area under oil crops. An energy balance study shows oil palm requires about 19.2 GJ/ha/year/ton, which produces 182.1 GJ/ha/yr/ton (GJ = Giga joules). The ouput/input ratio is 9.5 for oil palm, 2.5 for soybean and 3 for oilseed ripe.

Efficient Land Use

Oil palm provides the highest yield of oil per hectare per year compared to other oil-bearing crops. A hectare of oil palm yields 10X more oil than other major oil crops. An average yield of 4-5 tons of CPO/ha with best yields as high as 7-8 tons of CPO/ha - making it the most efficient crop in the world. In addition to the 4-5 tons of CPO, one ton palm kernel oil is common. The oil palm requires approximately 0.26 hectare of land to produce 1 ton of oil.

Higher yielding strains of palm oil come from the Tenera variety, a cross between the dura and pisifera, which produces 25% more oil than others; Malaysian palm oil is this variety.

Start-up costs: Depending on land preparation for land-clearing, irrigation systems and planting, up-front costs range from $500 to $3000 plus per hectare. According to IOPRI (Oil Palm Research Institute) via the World Agroforestry Center (ICRAF), the cost of replanting 1 hectare is $2222.

The cost for new plantation development is $2555/ha.

Yield

Oil palms begin producing after 24-30 months (special seed cultivation has reduced this to 18 months) but the industry standard is 30 months until first harvest. During the first 4-8 years of production, yield is a fraction of a mature plant and after four years yields 2.6-3.3 CPO tons/ha/year (roughly $2375-2970 at current market prices. Yield rises to peak production of 5.7-7.0 CPO tons/ha/year after 8 or 9 years on efficient plantations. Less suitable conditions may yield a third lower. Expenses generally run 20-30% of gross revenue. It is generally accepted that large oil palm plantations break even from a net present value standpoint in year 7 or 8 (based on 16% discount/cost of capital and interest rate, common to Indonesia where much data exists).

The harvesting rounds are organized throughout the year so the same palm is visited every 2 weeks, during which workers will harvest any ripe bunch using a chisel on a short pole or sickle on a longer pole for taller palms. A typical 2000-hectare plantation would employ a manager (usually a university graduate), three assistant managers and nine field staff. Manual workers are employed to carry out weeding, fertilizing and harvesting.1 Oil palm plantations may employ roughly one worker per 8-10 ha, whereas a single cowboy can handle 4,000-5,000 head of cattle grazing hundreds of ha.

Maintenance Points

No Burn

Replanting traditionally involved burning the felled palms at the end of their 25-year productive cycle. Now trees are mechanically felled, then windrowed, shredded and decompose on site, recycling 90-100 tons of organic matter per hectare.

Natural Fertilizer

Biomass like pruned fronds, empty fruit bunches (EFB) and old palm stems are an excellent source of fertilizer, high in potassium, nitrate, magnesium, phosphate and other soil nutrients. Water used in processing palm fruits - palm oil mill effluent (POME) - is biologically treated and returned to the land for its fertilizer and moisture benefits. The soil filters the organic matter and nutrients, returning clean water to the ground. POME, combined with EFB, produces compost. Used in sufficient amounts, it replaces 66% of chemical fertilizers otherwise required.

Eco-system maintenance in the tropics is highly dynamic. Herbicide spraying is confined to a small circle at the base of the palm and in strips along rows or harvesting paths. This covers ~25% of the planted area. If sheep, cattle, goats or deer are reared, weeds are ‘cleared’ naturally. Integrated pest management including barn owls, snakes, predatory insects, parasitoids and entomo-fungi are preferred over chemical pesticides to optimize yields.

Dealing with disease is crucial, as stem rot can destroy over 50% of an oil palm stand through severe infestation. Eco-friendly steps include deboling and shredding of oil palm debris during replanting, timely removal of infected palms and inoculation of seedlings with fungi.

New uses have been found for residues and waste materials from cultivation; these are now renewable raw materials for value added commercial products.

Bottom Line

Potential income from a hectare of oil palm, based on 2005 data, equals about €1,600/year (Malaysian study), compared to €1,400 for agricultural crops in the UK, of which €400 is from EU subsidy. Estimates of 1 worker per 8-10 ha are typical. A projected internal rate of return of 22% is achievable based on production of 3.66 tons/ha/year at $750/ton in income and expenses of 30% of revenue over 25 years, initial land expense of $2100/ha and initial plantation setup cost of $3000/ha. (Note: Rate of return could be adjusted higher due to increased yields in mature production years. ROR could be lower if initial plantation setup cost is higher due to equipment needs and land conditions.)

Other Key Points

  • Oil palm plantations store about 75 tons of carbon per ha vs. estimated 186 tons C/ha for rainforest
  • Price of palm oil has tripled since 2005.
  • Brazil has embraced cultivation methods of the Roundtable on Sustainable Palm Oil, an industry-backed group.
  • Industry standard plantation is 148 oil palms/ha, 9m spacing.
  • Oil palms need 1500-2000 mm of rainfall with no more than 4 consecutive dry months (irrigation is needed otherwise, driving up costs).
  • Fertilizer costs can range from $250-$1000/ha, depending on land conditions.

References

Palm Oil Analysis

Strengths

  • Excellent ROI
  • Working to reforest pastures
  • Carbon sequestration higher than native forest
  • Multiple market end users
  • Guaranteed future market
  • Relative low setup costs
  • Easy to administrate
  • Low risk for all involved
  • Certification Schemes (FSC) to solidify Market Position

Weaknesses

  • Medium-term ROI for investor (6-8 years)

Opportunities

  • Unlimited marketing potential
  • Unlimited market growth potential

Threats

  • Potential for other schemes to supplant this tree as a more versatile, faster growing tree or to introduce genetically engineered (GE) varieties nearer to end-use markets such as Southeast US

Past Negative Constraints to Privately Owned Palm Oil Plantations?

Until the past decade, a majority of farmed Eucalyptus wood fueled the charcoal and wood pulp industries in Brazil. The large wood pulp mills held their own plantations as a hedge against price fluctuation.

Since 2006, prices have doubled, yet supply has not met demand due to the emergence of Eucalyptus in biomass and wood paneling particle board.

Privately held plantations and cattle farms are now seeing increased interest from foreign investors to reap the benefits of this surging market demand.