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Small Scale Oil Extraction from Groundnuts and Copra (ILO - WEP, 1983, 128 p.)[edit]

CHAPTER V. SOCIO-ECONOMIC EVALUATION OF ALTERNATIVE OIL EXTRACTION TECHNOLOGIES[edit]

Chapter IV provided guidelines for the estimation of the profitability of alternative oil extraction technologies as well as some illustrative examples of the application of these guidelines. The latter are mostly of interest to would-be or practising small-scale oil producers as the profitability of these technologies is considered exclusively from the point of view of the entrepreneur rather than that of society. On the other hand, public planners and project evaluators from industrial development agencies may also be interested in various socio-economic impacts of these technologies such as the generation of productive employment, the improvement of the countryÂ’s balance of payments, rural industrialisation, etc. This chapter, therefore, analyses these various impacts through a comparison between a large-scale, capital-intensive plant and the small-scale plants (types 1 to 3) described in Chapter III (i.e. power ghani mill, baby expeller and small package expeller). The last section of this chapter suggests a few policy measures for the promotion of appropriate oil extraction technologies.


V.1. Employment impact[edit]

The generation of productive employment constitutes a major development objective for a large number of developing countries. Furthermore, improvement of the employment situation in rural areas is a prerequisite for the slowing down of the harmful rural to urban migration. Therefore, activities which favour the generation of rural employment should be of particular interest to public planners. The processing of groundnuts and copra in rural areas by small-scale, relatively labour-intensive mills may therefore be favoured over similar processing by large-scale plants located in urban areas.

In order to provide public planners with some indications of the impact on employment of alternative oil extraction technologies, comparison is made between a large-scale plant processing 28,800 tonnes per year of raw materials (groundnuts or copra) and small-scale plants (types 1 to 3) processing an equivalent amount of raw materials.

Table V.I provides estimates of the employment that would be generated by the above plants. The number of small-scale mills needed to process 28,800 tonnes per year of raw materials varies from 133 mills (small package expeller) to 267 mills (baby expellers). Employment generated by these plants varies from 399 labourers (small package expeller) to 801 labourers (baby expeller), while the large-scale plant requires only 48 labourers. Thus, the small-scale plants generate from 7 times to over 17 times more labour than the large-scale plant for the same amount of processed raw material input. Furthermore, the small-scale plants would mostly generate rural employment while the large-scale plant would mostly generate limited urban employment. Thus, from an employment point of view the small-scale oil extraction mills are much more suitable than the large-scale mill, the baby expeller (type 1) being by far the most advantageous in terms of employment generation. However, the choice of oil extraction technology should not be solely based on the amount of employment generated. Other factors, which are analysed below, should also be considered.


V.2. Skills requirements[edit]

The availability of skilled labour often constitutes a constraint to the establishment of industrial units in developing countries. In many cases, these countries must depend on imported skills for the operation of large-scale, capital-intensive plants. Thus, technologies which would minimise such dependence should be favoured over others.

Table V.2 provides estimates of skills requirements for the three small-scale plants and the large-scale plant discussed in the previous section. It can be seen that plants 1 to 3 require unskilled and semi-skilled labour only. On the other hand, half of the labour of the large-scale plant is composed of semi-skilled and skilled labour, as well as labour with a high-school level education. Thus, from the point of view of skills requirements, the large scale plant may not be suitable under conditions prevailing in the majority of developing countries.

Table V.1
Employment generated by various oil extraction mills

Input
(tonnes/year)

No. of plants required to process input

No. of employees required

1. Power ghani

28,800

190

570

2. Baby expeller

28,800

267

801

3. Small package expeller

28,800

133

399

4. Large-scale

28,800

1

48

Source: Tables IV. 2 and IV.3. It is assumed that three employees are needed to run a small-scale plant (plants 1 to 3).

Table V.2
Skills requirements for selected oil extraction mills

Plant type

Small-scale plants

Large-scale plant


1

2

3

4

Number of units

190

267

133

1

Unskilled

380

534

266

24

Semi-skilled

190

267

133

10

High-school level education

-

-

-

10

Skilled

-

-

-

4

TOTAL LABOUR

570

801

399

48

Source: Chapter IV (description of plants).


V.3. Investment and foreign exchange costs[edit]

The lack of sufficient capital and foreign exchange often constitutes a severe constraint on the development of industries in developing countries. Thus, technologies/scales of production which minimise the use of capital and foreign exchange should generally be favoured. In the case of oil extraction from groundnuts and copra, total investment costs required for the yearly processing of 28,800 tonnes of raw materials vary from US,473,450 for the power ghani (see table V.3 - Plant No. 1 - 190 power ghani units required) to US,004,800 for the baby expeller (267 units required to process 28,800 tonnes of raw materials). Total investments per tonne of coconut oil produced vary from US.8 for the power ghani mill to US.1 for the baby expeller. The corresponding figures for grounduts oil are respectively US.5 for the power ghani and US.5 for the baby expeller. Thus, from a purely investment point of view, the power ghani seems to be particularly advantageous. It may be noted that unit investment costs (i.e. per tonne of oil produced) are higher for the small-scale plants 2 (baby expeller) and 3 (small package expeller), than for the large-scale plant. Various reasons may explain this unexpected finding, including the lower productivity of equipment used in plants 2 and 3, various dis-economies of scale (e.g. in the use of land and buildings), etc. From an employment point of view, the power ghani mill is by far the most advantageous since total investment costs per employee amount to US,585 while these costs vary from US,496 for the baby expeller mill to US,395 for the large-scale plant.

Table V.3
Investment and foreign exchange costs (excluding working capital)

Plant

Input
(tonne/year)

No of plants required

Investment costs (US01

Foreign exchange costs (US02



Total

Per employee

Per tonne coconut oil produced

Per tonne groundnut oil produced

Total

Per employee

Per tonne coconut oil produced

Per tonne groundnut oil produced

1

28 800

190

1 473 450

2 585

89.8

131.5

665 000

1 167

40.50

59.40

2

28 800

267

6 004 830

7 496

340.10

508.50

3 204 000

4 000

181.50

271.30

3

28 800

133

5 542 110

13 890

313.90

469.40

4 256 000

10 666

241.10

360.40

4

28,800

1

1,795,000

37,395

100.50

147.00

1,400,000

29,166

78.40

114.60

Source: Chapter IV
1 Working capital is not included.
2 Imported equipment only

Considering foreign exchange costs, the power ghani mill is also, by far, the most advantageous. Foreign exchange costs per tonne of oil produced by the ghani mill are respectively US.5 and US.4 for coconut oil and groundnut oil, while the corresponding costs for the other plants vary from US.4 to US.1 for coconut oil, and from US.6 to US.4 for groundnut oil. It may also be noted that foreign exchange costs per tonne of output are higher for the small-scale plants - except the power ghani mill - than for the large-scale plant. The same reasons as those provided for total investment costs may also explain the high foreign exchange costs associated with some of the small-scale plants. It should, however, be noted that the provided estimates of foreign exchange costs would not apply to all developing countries since some of the latter (e.g. India) may be able to produce some of the equipment which we assumed would be imported. Thus, foreign exchange costs for some of the small-scale mills could be much lower than those indicated in table V.3


V.4. Multiplier effects[edit]

The setting up of oil extraction mills could have a number of multiplier effects in the form of backward and forward linkages (e.g. production of oil containers, production of equipment for the oil mill). However, the importance of these multiplier effects would vary according to the adopted oil extraction technology and scale of production. In general, small-scale labour-intensive mills should generate larger multiplier effects than large-scale, capital-intensive mills for the following reasons:

(1) A large proportion of the equipment used in small-scale mills may be produced locally, while most of the equipment used in large-scale mills must be imported.

(2) Although oil containers (e.g. drums, tins) could in some cases be produced by local workshops for both small-scale and large-scale plants, the very large number of containers needed for centrally located large-scale plants may necessitate import of some of these containers if these workshops cannot ensure a steady supply of oil containers to these plants.

Additional multiplier effects should apply equally to large-scale and small-scale plants. These may include the processing of wastes (of coconut shells) into a number of products, such as activated charcoal, and the use of cake as feed for farm animals.


V.5. Energy and water requirements[edit]

High energy costs favour the use of technologies/scales of production which minimise the use of energy per unit of output. Furthermore, technologies which do not require conventional energy sources (e.g. electricity, fuel), may be easily applied in rural areas where these energy sources are not always available. Similarly, the lack of sufficient water in some areas of a country will favour technologies which do not require abundant water input.

Table V.4 provides estimates of various types of energy and water required by the three small-scale plants and the large-scale plant for the processing of 28,800 tonnes of raw materials per year. Two types of energy are considered in this table: electricity and diesel fuel. No electricity is needed for plants 1 and 2 (i.e. power ghani mill and baby expeller), while the electricity required per tonne of output is much higher for the small package expeller (plant 3) than for the large-scale plant. Diesel fuel is required for all plants with the exception of the small package expeller. However, fuel consumption by the power ghani mills is much lower than fuel consumption by the baby expeller but higher than that of the large-scale plant. Thus, from the point of view of energy requirements, the power ghani mill is particularly advantageous, considering that the large scale plant uses both diesel fuel and electricity.

Considering water inputs, the large-scale plant is the only one which makes use of water. Thus, the four small-scale plants are equally advantageous with respect to water utilisation.

The availability of electricity in rural areas and the unit prices of electricity and diesel fuel should determine which technologies are the most advantageous from the point of view of energy utilisation. For example, if very cheap electricity (e.g. produced by hydro-electric plants) is available in rural areas, the use of a small package expeller could be more advantageous than that of other types of oil extraction units which use imported diesel fuel. On the other hand, if rural areas are not electrified, the only alternative left to rural oil producers is to use mills powered by diesel fuel.

Table V.4
Annual energy and water requirements

Plant

Input
(tonne/year)

No. of plants required

Electricity(KwH)

Diesel fuel (litres)

Water (m3)




Total

Per tonne coconut oil

Per tonne groundnut oil

Total

Per tonne coconut oil

Per tonne groundnut oil

Total

Per tonne coconut oil

Per tonne groundnut oil

1

28 800

190

-

-

-

462 000

28.2

41.3

-

-

-

2

28 800

267

-

-

-

648 000

36.7

54.9

-

-

-

3

28 800

133

2 699 000

153.4

225.8

-

-

-

-

-

-

4

28 800

1

2 000 000

112.0

163.8

280 000

15.7

22.9

10 000

.56

.82

Source: Chapter IV.


V.6. Suggested policy measures for the promotion of suitable oil extraction technologies[edit]

A government wishing to promote suitable oil extraction technologies may need to take into consideration the following factors:

Transport costs: Small-scale production units may be located in such a way as to minimise transport costs associated with the transport of raw materials and that of the outputs (i.e. oil and cake). Firstly, the production units may be located close enough to the growing areas so as to allow the transport of raw materials by low-cost transport means available in rural areas (e.g. animal-drawn carts). Secondly, the production of a small-scale unit is low enough to allow the marketing of the output within a relatively short radius from the location of the unit. On the other hand, processing by a large-scale plant, generally located in main urban areas, will necessitate costly transport over long distances for both the raw materials and the output. As transport costs will be reflected in retail prices, consumers located far away from these large-scale plants (especially rural consumers) will be particularly penalised.
Quality of oil produced by small-scale units: If most of the local demand is for unrefined oil, demand for refined oil by a minority of the population may be satisfied through imports or, if it is large enough, through the setting up of an oil refining plant. On the other hand, if most of the oil is produced by large-scale plants equipped with a refining unit, the tendency will be to produce and market refined oil only. Thus, low-income consumers will be forced to pay for the refining costs through high retail prices of refined oil.

Satisfaction of the basic needs of low-income groups: If a main development objective pursued by the government is to increase consumption by low-income groups, it is important that suitable low-priced consumer goods be made available in sufficient quantities. In the case of coconut and groundnut processing, the production of unrefined oil by small-scale units should contribute to the fulfilment of the basic needs objective for the following reasons. Firstly, as stated above, low transport costs and the absence of refining should yield lower retail prices than if the oil seeds were processed into refined oil by large-scale plants located in urban areas. Secondly, packaging costs associated with oil production by small-scale units should also be relatively low as low-income consumers do not generally buy bottled oil: instead they bring their tins or bottles to the oil mill or retail shops. Furthermore, large drums for the transport of oil from the mill to retailers are generally re-utilised. Finally, local marketing of oil produced by small-scale mills minimises the necessity for intermediaries and should therefore result in a further lowering of retail prices.

Contribution to the achievement of major socio-economic objectives: As shown earlier in this chapter, small-scale oil extraction technologies generate substantially more employment than capital-intensive technologies, promote rural industrialisation and generate substantial backward and forward linkages.

Avoiding harmful monopolistic conditions: In countries where the processing and marketing of oil bearing seeds and fruits are undertaken by a very small number of large-scale producers, the latter can take advantage of their privileged position by offering low prices to the farmers for the raw materials, and selling the oil at the highest prices the market can bear. On the other hand, the existence of a large number of small-scale oil producers should create a much more competitive market for both the raw materials and the oil, and should therefore benefit both the farmers and the consumers. The higher prices paid to the farmers may also induce the latter to expand their production.

Given the above factors, governments could implement a number of policy measures which promote oil extraction techniques consonant with the adopted socio-economic objectives. The content of these measures will depend, to a large extent, on the extent to which the produced oil is intended for the local market only or for both local consumption and export.

If the produced oil is mostly for local consumption (i.e. the country produces limited amounts of raw materials), it may be in the interest of the country to implement various measures to ensure the efficient processing of raw materials by small-scale rural and urban extraction plants. As these plants produce unrefined oil only, a small oil refining unit may be established in order to satisfy demand for refined oil by various population groups. Furthermore, if a sufficiently large amount of cake is produced by the small-scale oil extraction units, this cake may be further processed in a solvent extraction plant should such processing be shown to be economically feasible. Such an approach may require the implementation of the following measures:

(1) The implementation of disuasive fiscal and monetary measures with a view to slowing down the adoption of inappropriate oil extraction technologies. These measures may be complemented by quotas or regulations regarding the import of oil processing equipment;

(2) The organisation of an efficient cake collection system from small-scale mills. Price incentives may be offered to millers who supply good quality cake for further processing;

(3) Introduction of improved oil extraction techniques, and training of labour and management with a view to improving productivity;

(4) Promotion of the local production of spare parts and equipment for small-scale mills. Training of technicians for repair and maintenance work;

The above measures may be complemented by others (e.g. promotion of production or service co-operatives, price incentives) depending on local conditions and circumstances.

If a country produces a surplus of copra and/or groundnut oil for export, exclusive reliance on small-scale extraction units may not always be feasible. Instead, countries may need to use both small-scale and large-scale units, especially if the oil is exported in a refined form. The large-scale units (large expellers and/or solvent extraction plants) may be supplied with both oil seeds and cake produced by small-scale units. The small-scale units may produce oil mostly for the local market, with any surplus of unrefined oil supplied to the large plants for further processing and exports. Careful planning of investments in the oil extraction sector will be needed in order to avoid a low capacity utilisation of the large-scale plants or the closing down of small-scale units for lack of raw materials (e.g. in cases where the capacity of large-scale plants is larger than what is needed to produce for exports. Thus, these plants may use raw materials intended for the small-scale mills and market the output locally). For example, the Government may limit, each year, the amount of oil seeds to be processed by large-scale plants depending on the amount of oil which can be exported, local demand for oil, and the availability of raw materials. As a rule, the processing of copra and/or groundnuts by small-scale mills for the local market should constitute a priority unless the seeking of foreign exchange constitutes a more important objective than the other objectives described in this section.