1.

5 PROJECT FEASIBILITY

1.5.1 Introduction

Feasibility study serves as a preceding study of plant design to investigates both the technical
and economic feasibility of the project. It provides all necessary data for an investment decision.
This is because financing conditions have a direct effect on total costs and the financial
feasibility of the project.(KLM, 2011) The main objective of this feasibility study is to analyze
and measure ability in completing the project successfully within certain amount of budget and
time. Several factors taken in consideration which includes project sustainability, technical
feasibility, economic feasibility, environmental feasibility, safety and government support. From
all the factors as stated, positive and negative outcomes need to be determined to see whether
this project worth the investment.

1.5.2 Sustainability

Sustainability is defined as an act of developing projects in such a way that the future generation
will not have to face any lack as a result of previous projects (Okeniyi, 2016). According to the
source, it also ensures a balanced economy that will enhance productivity in future besides
reducing waste within the project. Therefore, the aspects that will be looked at is the
sustainability of resources, product and the process involved.

The main raw materials used in this project are palm olein, palm oil stearin and palm kernel oil
which are all palm oil based products. Palm oil is highly sustainable as they are versatile to be
used in wide range of products and the high productivity of the palm oil trees. Palm oil accounts
for 35% of the world’s vegetable oil market as it produces 10 tonnes of fruit per hectare. The
palm oil requires 10 times less land as compared to other three major oil producing crops which
are soya, rapeseed and sunflower crops [ CITATION Gre20 \l 1033 ] . Other than that, it is also used
as an eco-friendly diesel. Fifty one percent of European Union’s palm oil consumption was to
power cars and truck in 2017[ CITATION Ros20 \l 1033 ]. 85% of the world’s oil palm is grown in
Indonesia and Malaysia. Palm oil is he most produced and consumed edible oil globally, thus it
is assumed as the market leadership in world’s edible oil market. Malaysian industry is
producing 30% of global edible oil supply[ CITATION Yew16 \l 1033 ]. Palm oil industry has lifted
millions of Indonesians and Malaysians out of poverty. In conclusion, the incredibly high yields
and the mass employment of the rural people is the backbone of palm oil sustainability. Efficient
palm oil plantations and the growing demand for palm oil also give smaller land holders greater
opportunities to make a living off their land, maintain their ownership and support their rights to
property and prosperity[ CITATION Ama12 \l 1033 ].

Figure 1 shows the lowest land use and highest output of palm oil.
[Source: IUCN 2018]
 Figure 2 shows Malaysia is the 2nd largest producer of world palm oil
Adapted from:[ CITATION Gro20 \l 1033 ]

As for our product which is margarine, the sustainability has been increasing by sustainable
sourcing of oils, reduced emissions from transport and production, and limiting waste and water
usage in the factories [ CITATION Imp20 \l 1033 ].Margarine is a smart environmental choice
compared to animal based spread such as butter. This is due to half of the land required for
producing butter products and also the footprint which is less than one third of the size of
butter’s footprint[ CITATION Nil10 \l 1033 ].Another factor contributing to the lower carbon
footprint. The sustainable oil source used in margarine too, protect the planet’s natural resources
and ensure security of the supply for long term. Margarine is less than half environmentally
damaging as butter in aspects of energy use, greenhouse gases, damages to waterways and
acidification.
1.6.3 Market Demand

The market demand for margarine keeps rising. The analysis of Reports and Data states that the
global industrial margarine market was valued at USD 2.29 billion in 2018 and is expected to
reach USD 3.06 billion by the year 2026, at a CAGR of 3.7% [ CITATION Rep20 \l 1033 ]. Reason
for the rising demand of margarine is due to low fat content of industrial margarine and their
reasonable price as compared to butter. This are among the key factors contributing to the
demand of the industrial margarine market. Besides that, the manufacturers in the bakery
industry uses industrial margarine as its low fat and low calorie baked products which attracts
health conscious consumers. In order to control the hydrogenation level, manufacturers also
prefer plants as a source to produce industrial margarine. The rise in vegan and vegetarian
consumers is one of the reasons for the use of the plant as a source of industrial margarine
production. The other reason is also higher value for money and its multiple usages. Throughout
the world, margarine and butter market is expected to grow with single digit increase of CAGR
between 2015 and 2020[ CITATION But20 \l 1033 ] . In Malaysia, the trend of consuming margarine
is shown to be on the increase as well due to the fact of steady increase in production shown in
Figure 3.
 Figure 3 Production of margarine in thousand metric tons per year in Malaysia
Adapted from: [ CITATION RHi20 \l 1033 ]

The demand for trans-free margarine keeps increasing as the demand for healthier margarine
rises. This is also to be in line with the policy of World Health Organisation (WHO) in
eliminating TFA by 2023.It has becoming an increasingly important policy since a growing
number of countries have taken action to protect their citizens from TFA. 28 countries have
implemented mandatory TFA limits which covers 2.4 billion people which is 31% across the
globe. As shown in the Figure 4, the TFA limit policy keep increasing year by year.
 Figure 4 Number of countries with mandatory Trans Free Acid limits in effect, by year
Adapted from: [ CITATION RES20 \l 1033 ]

1.6.4 Economic Potential analysis

The purpose of this section is to evaluate the economic aspect of the overall Margarine
production process and analyses the viability of proceeding to subsequent plant design stages.
Firstly, a summary of findings on existing players in Malaysia’s Margarine market and demand
growth will be described to show the potential economic advantage of this plant. Next, an
assessment of the process will be measured based on preliminary economic potential analysis of
the overall process from CPO as feedstock to generation of Margarine as output. The gross profit
margin calculated from the differences between cost of raw material and product market value
will be used as an indicator as to whether the process is viable. A positive gross margin translates
into an acceptable project, whereas negative gross margin result is a sign of non-profitable
project, rendering it non-viable.

Economic potential analysis was previously studied during process route screening in Section
1.3. In this part, the profit margin of the overall process is evaluated to determine if the project is
feasible economically. A gross margin calculation as per Table x (From Section 1.3.5.3 (b))
shows that the profit per kg margarine is RM 1.98.

Economic potential analysis is the study carried out to determine whether a

product development is profitable and viable for a company. This will
determine that using this particular process will bring profits or loss to the
company annually. According the statistics in Figure 5 it shows that Malaysia
on average produces 62.13 thousand metric tons of Margarine per year. As
our goal is to produce 10 thousand metric tons of margarine it will take up a
good amount of the market. Thus, dominating the market. These analytics
also show that there are high chances of dominating the market.

Figure 5 Production of margarine in Malaysia from 2013 to 2018 (R. Hirschmann, n.d.)

As Malaysia is a key producer and exporter of CPO (Crude palm oil), it is

quite easily available and relatively cheap. It can cost up to RM 39.5 million
per Annum. RM 39.5 million for roughly 13,000 metric tonnes as this will be
used as raw material. According the Margarine export from Malaysia by
Tridge, Malaysia had $37.64 Million = RM 15.4 Million in global export. That
is 30.2% increase since last year, and 10.9% increase in last 3 years. As
percentage of exports seem to be increasing we can conclude there is a
healthy market demand for Industrial Margarine from Malaysia (Tridge, n.d.).
Average Export price is $1230 per Metric ton. RM 5054 per Metric ton and it
has gone up 14.5% since last year 2019 (Tridge, n.d.).

Crude palm Oil (Raw Material)

As 1kg of CPO cost RM 3.0425 thus 13,000,000 kg*3.0425 = RM 39,552,500

Approximately RM 39.5 million. In 2018, the production volume of crude

palm oil in Malaysia totaled approximately 19.52 million metric tonnes
(Malaysia Crude palm oil production volume 2018 | Statista, n.d.). Thus it is
safe to say that there will be no shortage of raw material

Margarine (Product)

After Chemical Interesterification, the Margarine selling price per kilogram is

RM 4.50571

Thus 10,000,000 kg * RM 4.50571 = RM 45,057,100

Approximately RM 45 million.

Profit Margin

So, to conclude Gross margin of Margarine per kilo is RM +0.81/kg

10,000,000 kg * RM 0.81 = RM 8,100,000

From the calculation above, it shows that the revenue estimated for the
production capacity, excluding cost for utilities, maintenance and labour.
With the amount of estimated revenue, it proves that this production plant is
economically feasible.

1.6.5 Safety Feasibility

Safety aspect plays a huge role in plant design and development as it is required to comply with
the rules and regulations enforced by Department of Occupational Safety and Health (DOSH)
and also to comply with the acts in Occupational Safety and Health Act (OSHA). Besides
occupational safety, the properties of the chemical components involved in the whole process
need to be considered as well. The safety aspects can be discussed based on three stages of the
overall process, which are physical refining of CPO, dry fractionation of RBDPO, Chemical
Interesterification of fat blends and final Margarine processing.

1.6.5.1 Safety Feasibility in Physical Refining Process

Physical refining of the crude palm oil consists of degumming, bleaching and deodorization
process. It serves as the primary process in margarine production. In the degumming process,
phosphoric acid is added to the hot oil which intends to remove non-hydratable phosphatides by
centrifugation. There is precaution to be taken in this process as the highly corrosive phosphoric
acid leads to refining problems and it is difficult to be removed if it is excessive. Therefore,
stronger corrosive resistant equipment has to be constructed. Other than that, the contractors
need to be extra cautious. Although phosphoric acid is added into small amounts, but it may
cause leaking from the acid tank, which may cause severe skin burns or eye damage to the
contractors involved. The bleaching earth used in this process too, has the tendency to up go
spontaneous combustion. There should be adequate knowledge on how to handle substances with
fire hazards. In this process however, no harmful by-products will be generated. So, it will not be
harmful to environment and humans.

1.6.5.2 Safety Feasibility in Dry Fractionation Process

Fractionation is done in our process since the palm oil can be readily separated into low melting
fraction which is of the low melting point of triglyceride, olein and high melting fraction, the
solid stearin. Dry fraction method is used because it does not involve chemical usage. Therefore,
the by-products that will be released will not be harmful. It will all be non-hazardous substance
imposing no risk on any life. In addition to that, the products that will be separated is from the
process, which are olein and stearin are also non harmful substances. Most importantly,
fractionation process is definitely not a complex one. This will enable the process to be simple to
handle and monitor, thus it can be said that the process is inherently safe.

1.6.5.3 Safety Feasibility in Process Ezymatic Interesterification Process

After the refining and fractionation process is done, the fat blends are modified using enzymatic
interesterification process. In the enzymatic interesterification process, the catalyst used is
specific with 1,3 specific lipase enzyme that use to rearrange the fatty acids at 1,3-positions
while 2-position is remaining unchanged in the glycerol backbone. Greener product is formed
and natural product is formed this way.IE has improved the melting properties of final produced
margarine as well as the better feel and taste in mouth. The enzymatic interesterification process
is way more sustainable than chemical interesterification process as there is no post treatment
required in the products afterwards. There is also better control over the final product which
results in less cost required as less expensive equipments are required with low investment cost.
The energy needed is tremendously saved as the process occurs at lower temperature and natural
product without TFA is produced. This is an environmentally and friendly production which
does not use chemicals or solvents. As a result, less waste is generated. In safety aspect, the
process is not involving extreme condition, therefore making it safe and feasible.

As a precaution measure, the sodium methoxide and citric acid are removed by addition the
bleaching agent into the fat blends. Bleaching earth are used in general to decolorize various
minerals, vegetable and animal oils. The advantage of using bleaching earth is that, it absorbs as
much as several times its dry mass in water due to its excellent colloidal properties. It is very
safe to use as it is mostly stable after reaction with metal ions. This bleaching agent is then
separated from the mixture by using filter-aid settled. The only risk that may encounter is
poisoning of catalyst. Therefore, minimum water will be used to protect the catalyst.

1.6.6 Environmental Impacts

The bleaching agent, although it has to be dealt safely in the beginning due to it, being
combustible, in later stage it poses no harm. The spent bleaching earth will be classified as a
solid waste. It can also be converted to clay-carbon adsorbent for it to be reused as adsorptive
cleansing of vegetable oils. Even the by-product of the process, Palm Fatty Acid Distillate
(PFAD) will be discharged by the scrubber in the downstream and be used as a renewable raw
material in biofuels production. PFAD and other residues help replace the crude oil-based diesel,
enabling all diesel-powered vehicles to reduce greenhouse gas emissions by 90% on average.
PFAD can also be used to manufacture other oleochemical products. Based on the raw materials
and by-products generated, we can conclude that the physical refining method for crude palm oil
is fairly sustainable as most of the waste products can be reused or reproduced as other useful
products.
In the fractionation process, the palm olein fractionated will not be used for further reactions. It
is therefore separated and discharged out during and after the fractionation stage. Even as a
discharged substance, the palm olein is highly valuable in terms of being a renewable source of
raw material for edible oil and pharmaceutical products. This is really good as we do not need to
spend more on the waste treatment process as the discharge can be reused. On top of that, the
palm olein has good viscosity index, oxidative stability, and flash fire point. Palm olein can also
used in our fat blend for the margarine formulation. This will save us the cost as palm olein is
produced in house, there is no need to purchase it from outside. Eventually the business will be
more economically sustainable as palm olein is also an eco-friendly product.

As for an ideal interesterification reaction, the quality of feedstock should be in the most refined
condition. Palm oil and its fractions are readily available stocks for interesterification because
they are available in in refined, bleached and deodorized form. Water is among the catalyst
poison that will deactivate the catalyst. Therefore, partial pressure using nitrogen is introduced to
remove the water.

1.5.7 Governmental support

According to the Malaysia Investment Development Authority, tax incentives for the
manufacturing industry are provided and stated in the Promotion of Investments Act 1986,
Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones
Act 1990. Partial or total relief from income tax payment for a specified period is one of the
direct tax incentives. As for indirect tax incentives, the manufacturer will be exempted from
import duty, sales tax and excise duty. The major tax incentives that were initiated by the
Malaysian government for companies investing in the manufacturing sector are the Pioneer
Status and Investment Tax Allowance (ITA). For a company that applied and was granted the
Pioneer Status, the company will be able to enjoy a five year partial exemption from paying
income tax. In addition, unabsorbed capital allowances as well as accumulated losses incurred
during the pioneer period can be carried forward and deducted from the post pioneer income of
the company. As for the ITA, company which are granted it will be entitled to an allowance of
60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for
the approved project) incurred within five years from the date the first qualifying capital
expenditure is incurred. The company can offset this allowance against 70% of its statutory
income for each year of assessment. Any unutilised allowance can be carried forward to
subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at
the prevailing company tax rate.

One of the main initiatives taken by the state government to improve Sarawak is to set up the
Regional Corridor Development Authority (RECODA). One of the initiatives taken by
RECODA is to introduce Sarawak Corridor of Renewable Energy (SCORE). Under SCORE,
palm oil industry is one of the priority industries as global annual demand growth for palm oil
products is forecast to be 8.5% and prices are expected to remain high The main vision of
introducing SCORE is to turn Sarawak into a competitive and progressive region through
sustainable economic development. The Sarawak Corridor of Renewable Energy (SCORE) is a
dynamic long-term development project that offers exciting new opportunities for companies
looking to start a company or expand their operations and geographic reach in Asia’s fast-
growing markets. RECODA can provide research and information, independent advice and
practical help with assessments and Pioneer Status applications, all completely free of charge. It
is a one-stop shop for potential investors, dedicated to smoothing the path to successful projects.
Besides that, RECODA’s highly professional consultants and support staff can assist you with
everything from visa applications and corporate registrations to finding the right location,
recruiting staff and making contact with local authorities, suppliers and professional service
providers. Market and competitor intelligence are also another service that is provided by
SCORE. In addition to all the above, the state government provides flexible terms of payment for
industrial land for the first five years, rebated on land premiums if project is completed within
stipulated time frame and also provides competitive electricity and water tariffs.

1.6.8 Conclusion
In the project’s feasibility study, both the technical and economic feasibility of the project has
been studied. The components that was touched on is the project’s sustainability, market
demand, economic potential analysis, safety factors, environmental impacts that will be involved
and government support to run our project.

According to the market demand and economic potential analysis, the demand of margarine
keeps rising especially after the World Health Organisation (WHO) policy in eliminating TFA
by 2023 and for the increasing demand in low fat and reasonable margarine consumption. Our
product development is profitable for the company as the percentage of margarine export too,
keeps increasing year by year. Our estimated revenue that will be generated from the production
capacity is RM 8,100,000 per year, which is reasonable amount after deduction
of other costs involved. In terms of safety, all measures are taken to cater for
harmful raw materials, by products and the processes involved throughout
the production line starting from refining of palm oil up to the formulation of
margarine. All the raw materials and by products too, does not cause any
harm. Most of our by-products are recycled, therefore decreasing the waste
treatment processes. In ensuring the successful run of this project, plenty of
support is given by the government.

Considering all the good inputs obtained through our thorough research on
all the factors involved, we can conclude that our production will be running
smoothly in long run due to feasibility of all aspects involved. Therefore, we
are confident to go further with plant designing.

References
al, N. K. (2010). Comparative Life cycle assessment of margarine and butter consumed in the UK,
Germany and France. International Journal of Life Cycle Assessment, 916-926.

Amanda. (2012, 8 22). On Palm Oil. Retrieved from Soap Queen by Bramble Berry:
https://www.soapqueen.com/business/on-palm-oil/
Butter and Margarine Market: Global Industry Analysis and Opportunity Assessment 2015 - 2025. (2020,
Feb 2020). Retrieved from Future Market Insights:
https://www.futuremarketinsights.com/reports/butter-and-margarine-market

Data, R. a. (2020, Feb 3rd). Intrado. Retrieved from Industrial Margarine Market To Reach USD 3.06
Billion By 2026 | Reports And Data: https://www.globenewswire.com/fr/news-
release/2019/11/19/1949678/0/en/Industrial-Margarine-Market-To-Reach-USD-3-06-Billion-By-
2026-Reports-And-Data.html

Green Palm Sustainability. (2020, Feb 2nd). Retrieved from Certified Sustainable Palm Oil:
https://greenpalm.org/about-palm-oil/why-is-palm-oil-important

Gro Intelligence. (2020, February). Retrieved from Palm Oil: Growth in Southeast Asia Comes With A
High Price Tag: gro-intelligence.com/insights/articles/palm-oil-production-and-demand

Improving Sustainability. (2020, Feb 1st). Retrieved from European Margarine Association:
http://imace.org/en/about-margarine/improving-sustainability/

R.Hirschman. (2020, Feb 20). Production of Margarine in Malaysia 2013-2018. Retrieved from statistica:
https://www.statistica.com/ statistics/716609/production-of-margarine-malaysia/

RESOLVE TO SAVE LIVES. (2020, Feb). Retrieved from Artificial trans fat can be eliminated from the world
by 2023: https://resolvetosavelives.org/cardiovascular-health/transfat

Rosner, H. (2020, Feb 2nd). Palm oil is unavoidable. Can it be sustainable? Retrieved from National
Geographic: https://www.nationalgeographic.com/magazine/2018/12/palm-oil-products-
borneo-africa-environment-impact/

Why is Plam Oil Sustainable? (2020, Feb 1). Retrieved from Green Palm Sustainability:
https://greenpalm.org/about-palm-oil/why-is-palm-oil-important

Yew, W. C. (2016). The sustainability of oil palm industry in Malaysia : A comprehensive review.
International Journal of Economic Perspectives, Vol. 10, No. 4. pp. 305-310.