Panoramic view at the sunflower field in Tanzania near Ikungi

Edible Oil Production

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Edible Oil Production

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Agriculture
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
> 25% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
USD 100 million - USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
< USD 500,000
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Industry, Innovation and Infrastructure (SDG 9) Zero Hunger (SDG 2)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8)

Business Model Description

Provide and operate machinery and technology for the commercial processing of high value field crops, such as marula, sunflower, avocado and palm, into refined and double refined edible oil for local consumption and export through a public-private partnership model. The public sector allocates suitable land for installation of processing facilities together with relevant infrastructure, such as roads, power and water utilities, and requisite incentive package structure to encourage local value addition.

Expected Impact

Optimize domestic crop utilization, foster local value addition and advance import substitution.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Country & Regions

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Country
Region
  • Tanzania: Countrywide
  • Tanzania: Western Zone
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Sector Classification

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Sector

Food and Beverage

Development need
Agriculture is the main stay of the Tanzanian economy, contributing about 24% of GDP. As a key driver for the economy, it can help to achieve major national priorities. Despite the potential, the sector suffers from a number of challenges, including low productivity and limited value addition (1).

Policy priority
The Tanzanian government recognizes agriculture as central to realizing its objectives of socio-economic development. It is committed to promote value addition in agriculture in order to increase the overall sector competitiveness. There is also commitment to use science technology to improve agriculture productivity and quality (3, 4, 5).

Gender inequalities and marginalization issues
Although agriculture employs over 70% of women, they are faced with a myriad of constraints in terms of access to land, credit, extension services and markets. As a result, women end up engaging in inferior, low quality jobs and earn far less compared to men (11).

Investment opportunities introduction
Tanzania has a significant supply gap for edible oil for domestic consumption. This presents an opportunity for investment in local processing for edible oil. The current production capacity is only 36% of total edible oil demand (6, 7).

Key bottlenecks introduction
The most common weakness for the majority of agriculture commodities in Tanzania is the slow pace of productivity increase. This is caused by multiple factors, including seeds, inputs like fertilizer and pesticide, watering, harvesting, drying and processing (4).

Sub Sector

Food and Agriculture

Development need
Tanzania's food industry faces several challenges, including lack of sufficient medium and large-scale processing activities, and inadequate market development and weak industry linkages. Local markets are ill-structured, have unclear models with inadequate information and very long chains, which inhibits profitable businesses (2).

Policy priority
The government of Tanzania has identified edible oil as a strategic commodity for reducing food imports and promoting domestically produced food commodities. The choice of the product is supported by the fact that Tanzania’s large national demand for edible oil requires imports to meet about 60% of demand (5).

Gender inequalities and marginalization issues
Tanzanian women have limited decision-making power, unfavourable regulations, and biased socio-cultural norms, which reduces their access to finance, land, technical training, labour-saving equipment and other productive resources. As a result, barriers are stifling their potential to be leaders of technological invention, entrepreneurship, and legal and regulatory change throughout the agriculture sector (10).

Investment opportunities introduction
Product segments with potential market opportunities are premium oils sold mainly in urban centres, economy oils for sale across the country, crude oil targeting consumption in crop-growing areas, and refined palm that can be sold nationwide (9).

Key bottlenecks introduction
Although edible oil shows promise both in terms of seed production and processing, it still faces challenges in realizing its full potential. The major challenges include the availability of improved seeds, limited financial support, and stiff competition for the domestically produced edible oils from imports (8).

Industry

Agricultural Products

Pipeline Opportunity

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Investment Opportunity Area

Edible Oil Production

Business Model

Provide and operate machinery and technology for the commercial processing of high value field crops, such as marula, sunflower, avocado and palm, into refined and double refined edible oil for local consumption and export through a public-private partnership model. The public sector allocates suitable land for installation of processing facilities together with relevant infrastructure, such as roads, power and water utilities, and requisite incentive package structure to encourage local value addition.

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

USD 100 million - USD 1 billion

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

Tanzania imports 320,000 tons of edible oil per year

Tanzania’s annual demand for edible oil stands at 500,000 tons, whereas the country can supply only 180,000 tons, forcing it to import 320,000 tons each year, signaling major opportunities for import substitution (7). Tanzania's average import bill for animal or vegetable fats and oils and their by-products stands at around USD 126 million (14, 18).

With an annual output of around 350,000 tons of sunflower oilseeds, Tanzania is one of the top ten sunflower oilseed producers in the world (15).

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

> 25%

A feasibility study for the establishment of a marula oil processing industry at Doma Village, Mvomero District in Mwanza estimates an IRR of 31%, which is greater than the discounting rate (weighted average cost of capital, WACC) of 13.38% (12).

A USD 11 million initial investment in a 12,000 metric tons solvent extraction refinery provides an IRR of 34% IRR (9).

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Short Term (0–5 years)

A USD 11 million initial investment in a 12,000 metric tons solvent extraction refinery provides exhibits a 3-year breakeven period (9).

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

< USD 500,000

Market Risks & Scale Obstacles

Business - Supply Chain Constraints

Edible oil production faces the barriers of low yielding seeds and poor agricultural methods, which limit production and drive up costs (9).

Market - Volatile

The edible oil production downstream value chain is inefficient, with a lack of integration in the value chain, resulting in processing overcapacity (9).

Business - Business Model Unproven

A large number of small-scale crushers operate below capacity, with few utilizing solvent-based technology to extract the full potential oil from seeds (9).

Impact Case

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Sustainable Development Need

The level of food insecurity is high in Tanzania. 15% of rural households are food insecure, with 15% more at risk of becoming food insecure (32).

Tanzania imports significant amounts of food with an estimated value of USD 1.13 billion per year. Edible oil imports alone drain a lot of scarce foreign exchange for the country. The average import bill for animal or vegetable fats and oils and their by-products is USD 126 million per year (14, 18, 21, 23).

Expected Development Outcome

Edible oil production supports increase in food security levels. Deficit in food supply, edible oil in particular is a common occurrence in Tanzania. It is estimated that over 15% of rural households are food insecure, with 15% more at risk of becoming food insecure. The fortification of sunflower oil can, for example play an important role in reducing vitamin A deficiencies (14, 23, 32, 33).

Edible oil production advances the Government's long-standing objective of promoting import substitution (21, 22, 23). It also supports the broader agricultural transformation and industrialization agenda (14, 18).

Gender & Marginalisation

Edible oil production contributes to increased employment opportunities for women and low-income groups across different segments of the processing continuum, such as cleaning, grading sorting and packaging. For example, in the poorest region of Tanzania, Kigoma – there are over 30,000 smallholder subsistence palm oil farmers (37). In addition, they get an opportunity to learn and upgrade their skills in these areas, offering further growth potential (1).

Development goals such as environmental conservation, improved household nutrition for poor and marginal communities, and gender equality and women’s empowerment may be achieved through sustainable edible oil value chain development (37).

Primary SDGs addressed

Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure

9.2.2 Manufacturing employment as a proportion of total employment

9.2.1 Manufacturing value added as a proportion of GDP and per capita

Current Value

Share of total employment in manufacturing estimated at 6.75% in 2021 (4).

Share of manufacturing GDP at current prices (%) estimated at 8.2% in 2020/21 (4).

Target Value

Share of total employment in manufacturing projected at 12.8% in 2025/26 (4).

Share of manufacturing GDP at current prices (%) projected at 8.5% in 2025/26 (4).

Zero Hunger (SDG 2)
2 - Zero Hunger

2.b.1 Agricultural export subsidies

2.4.1 Proportion of agricultural area under productive and sustainable agriculture

2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size

Current Value

Percentage share of agriculture on total export earnings estimated at 13% in 2020/21 (4).

Volume production of the traditional commercial crops estimated at 794,500 tons in 2020/21 (4).

N/A

Target Value

Percentage share on agriculture on total export earnings projected at 19% in 2025/26 (4).

Volume production of the traditional commercial crops projected at 71,583,200 tons in 2025/26 (4).

N/A

Secondary SDGs addressed

Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

Directly impacted stakeholders

People

The general population and low-income groups get increased access to affordable and nutritious food products, enhancing their food security levels.

Gender inequality and/or marginalization

Women and youth obtain income generation opportunities with growth potential.

Corporates

Small and large scale farmers enjoy uptake for their horticulture produce with lower post-harvest losses.

Public sector

The government benefits from greater domestic value addition and enhanced export activities towards industrialisation and regional integration.

Indirectly impacted stakeholders

Planet

Sustainable processing methods reduce the negative impact of the food industry on the environment, and lower post-harvest losses contribute to greater resource efficiencies.

Corporates

Other actors in the agricultural value chain benefit from demand for their services, such as transporters, packaging companies and certifiers.

Outcome Risks

Large-scale oil production may lead to the depletion of high value field crops, if the value chain is not managed sustainably, especially given potential externalities from further strain experienced through climate change.

Increased industrial activity through edible oil production may exacerbate pollution levels with negative health and biodiversity consequences for people and planet.

Impact Risks

The limited availability of high yield seeds and local seed multiplication and finance sources may limit the inputs required for edible oil production and hence reduce the expected impact.

If no deliberate efforts are in place to enhance the skill base of women and youth, the processing activities may provide opportunities to those already served and hence limit the expected impact.

The EU’s restrictions on the use of export taxes in a number of developing countries is a major trade risk, which may have negative trade effects for Tanzania particularly as it struggles to promote value addition, and which may hence limit the expected impact.

Impact Classification

B—Benefit Stakeholders

What

Edible oil production optimizes the utilization of high value field crops grown domestically, fosters local value addition and advances import substitution.

Who

Farmers, especially small farm owners and farm households, benefit from new opportunities to supply raw material, and especially the rural population obtains enhanced skills in agro-processing and additional job opportunities through edible oil produ

Risk

While the edible oil production model is proven, input availability and the target focus on women and youth requires consideration.

Impact Thesis

Optimize domestic crop utilization, foster local value addition and advance import substitution.

Enabling Environment

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Policy Environment

Third National Five-Year Plan (FYDP 3), 2021: Seeks to enhance research and development and productivity in strategic crops, including edible oil crops. Particular emphasis is on expanding the production zones for oil palm oil beyond Kigoma region, the traditional production area. The 19,641 hectares currently farmed represents just 17.2% of the area suitable for growing oil palm, suggesting significant room for expansion (4).

Sunflower Sector Development Strategy, 2016-2020: Highlights government's emphasis on the use of hybrid seeds, starting with imports but increasingly shifting the focus to domestic breeding (35).

Tanzania Investment Centre (TIC), Strategy for Edible Oil Promotion, 2020: TIC is has laid down strategies for addressing key challenges in the edible oil sector particularly increased access to finance for farmers by securing investments into the edible oil processing segment (6).

Tanzania Official Seed Certification Institute (TOSCI) and the Tanzania Agriculture Research Institute (TARI) Strategy for the Edible Oil Sector: Main emphasis is to ensure sunflower can be cultivated in most parts of the country as it benefits from drought-resistant properties and is less susceptible to diseases than other oil-producing crops (35).

Financial Environment

Fiscal incentives: Tanzania offers 0% import duty on project capital goods, raw materials and replacement parts for agriculture, animal husbandry and fishing, including for edible oil production. It also offers 100% capital expenditure in the agricultural sector (30, 31, 32).

Fiscal incentives: To support the production of sunflower oil, the government has introduced VAT exemptions on importation of agricultural processing equipment and sunflower seed cake, while maintaining import tariffs on crude and refined palm oil at 10% and 25%, respectively (35).

Other incentive: In June 2020, the government announced that it would support farmers across the country to plant oil palm by providing them with free seedlings. The government also set aside USD 4.3 million to boost cultivation of oil palm. Measures are also being taken to improve the accessibility of farm inputs and undertake capacity building for farmers to enable better farm management (35).

Regulatory Environment

Crops Laws (Miscellaneous Amendments) Act, 2009: Amends various crops laws with a view to rationalizing roles and functions of Crop Boards, their financing and to provide for other related matters (28).

Plant Health Act, 2020: Has come into play following the dramatic spread of transboundary plant pests and after diseases have increased dramatically in recent years (26).

Plant Protection Act, 1997 and Plant Protection Regulations, 1999: List the pesticides registered in Tanzania (27).

TZS 54:2010: Animal and vegetable fats and oils – sampling (EAS 291), 2002: Is the standard that describes methods of sampling crude or processed animal and vegetable fats and oils, whatever the origin and whether liquid or solid (14).

TZS 1336:2010: Animal and vegetable fats and oils – determination of insoluble impurities content (EAS 312), 2002: Is the standard that specifies a method for the determination of the insoluble impurities content of animal and vegetable fats and oils (14).

Marketplace Participants

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Private Sector

Murzah Oil Mills Tanzania, Ltd, Mount Meru Group Ltd, Joe Land Oil Tanzania, Yaza Investment Co. Ltd.

Government

Ministry of Agriculture, Ministry of Industry and Trade, Agriculture Research Institutes, Tanzania Export Processing Zones Authority (TEPZA), Agriculture Markets Development Trust (AMDT), Tanzania Investment Centre (TIC), Tanzania Industrial Research Development Organisation (TIRDO).

Multilaterals

United Nations Industrial Development Organization (UNIDO), International Trade Centre (ITC).

Non-Profit

United States Agency for International Development (USAID), SNV Netherlands Development Organisation.

Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map
rural

Tanzania: Countrywide

Sunflower can grow in most parts of Tanzania. In Dodoma, for example, most farmers are engaged in oilseeds production. The crop grows well in dry weather conditions of the Central Corridor compared to other crops like maize and wheat.
rural

Tanzania: Western Zone

Palm tree requires specific climatic conditions, which are only found in some parts of Tanzania, such as Kigoma. With 46-67%, the palm tree nuts have the highest oil content (36, 37).

References

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    • (1) East African Community Secretariat, 2021. Fruits and Vegetable Strategy and Action Plan, 2021-2031. https://www.eacgermany.org.
    • (2) World Bank Group, 2019. Transforming Agriculture, Realizing the Potential of Agriculture for Inclusive Growth and Poverty Reduction.
    • (3) United Republic of Tanzania, 2020. Agricultural Sector Development Plan 2 (ASDP-2). https://asdp.kilimo.go.tz.
    • (4) United Republic of Tanzania, 2021. Third National Five-Year Plan (FYDP 3).
    • (5) MDPI Sustainability, 2019. Reducing Edible Oil Import Dependency in Tanzania: A Computable General Equilibrium CGE Approach. www.mdpi.com/journal/sustainability.
    • (6) Tanzania Investment Centre, 2017. https://www.tic.go.tz.
    • (7) International Trade Centre, 2019. Value Chain Analysis for Avocado Sub-Sector in Tanzania.
    • (8) Kombe, et al. 2017. The Potentiality of Sunflower Sub-Sector in Tanzania; Bank of Tanzania Working Paper, Volume 10.
    • (9) United States Agency for International Development, 2017. Feasibility Study for the Edible Oils Sector in Tanzania.
    • (10) World Bank, 2013. Gender and Economic Growth in Tanzania.
    • (11) United Nations Development Programme, 2018. Mainstreaming, Acceleration and Policy Support (MAPS).