Could palm oil be the new crude oil?

Small SMEs are making Nigeria a palm oil production powerhouse, but they face many hurdles, writes OBODO EJIRO.

 

In Emohua, a community about 84.7 kilometres away from where King Jaja of Opobo reigned before he was exiled in 1887, the number of a peculiar set of SMEs (Small and Medium Scale Enterprises) springing up is increasing.

 

These SMEs are not managed by suite-wearing, clean-cut, ladies and gentlemen but by men and women, often in their late-thirties, who are cut out for hard work.

 

They produce palm oil, a product for which Opobo which is located in Rivers state, was known in colonial times.

 

In the last three years, the price of palm oil has kept rising both in domestic and international markets and the owners of the new SMEs see in the rise an opportunity, not just to make money, but a chance to prove the saying, ‘crude oil is king,’ wrong.

“When I graduated from the University of Port-Harcourt in 2007,” says Davidson Ekiyor, who owns and manages a small palm oil processing mill in Emohua, “everyone expected that I would wait for a job from the government or one of the multinationals extracting crude oil in my community. However, I wanted to do something entirely different.

 

“On my trips to and from university back in the day, I noticed that palm trees grow freely everywhere in the Niger-Delta,” the heavily built 38-year-old says, hushing slightly, as though he was revealing a trade secret.

 

“I used to say to myself, ‘surely God put these trees here for a reason.’ It was in those days that I decided to do something entirely different with the potential of the trees.”

 

Indeed, that desire to do “something entirely different” has propelled at least a million people across Nigeria’s 24 palm growing states into one occupation or the other in the palm oil value chain.

According to the Oil Palm Growers Association of Nigeria (OPGAN) as far back as 2011, an estimated 350,500 people in Rivers state alone made a living off the palm oil value chain, while 200,000 people in Imo state were involved in one aspect of the business or the other.

 

The milling segment of the value chain, to which Ekiyor belongs, is responsible for extracting the oil from the palm fruits and accounts for over 35 percent of the industry’s workforce according to experts. So, as small as Ekiyo’s mill is, it directly employs 18 people, while the activities of the mill indirectly keeps several others on the job.

 

“If I had been employed by government or an oil company, I wouldn’t have had the opportunity to reduce the unemployment situation in my community,” Ekiyor tells me as we make our way to the small 10 feet shipping container that serves as his office on the milling site.

 

Bold shots at modernisation

In the last three years, more players in the milling segment of the value chain have started organising themselves into sophisticated SMEs. They have also been making bolder attempts at distinguish their output through branding. Some have even started exporting their output to other African countries.

 

“When I began production,” Ekiyor tells me, as we settle into his office, “we used to just pour the palm oil into 25-liter jerry-cans and would sell to wholesalers in open markets.

 

“Back then, we were clearly at their mercy as they would dictate the price at which they bought from us. But later, we felt we could do better,” he says, his tone slightly higher and his eyes lighting up, as though he smelt money somewhere.

 

“Nowadays, we package the oil into smaller cans which have my business name on them. We are attacking the market both ways right now: from the retail and wholesale ends.”

 

At present, neatly branded bottles and small jerry-cans from Ekiyor’s mill can be found on the shelves of big super-markets in Port Harcourt, Benin City and Warri, while he still keeps the open markets supplied.

Asked how the business has performed in terms of profitability eight years after inception, Ekiyor, who is an Economics graduate, smiles.  Staring at the neatly arranged files on his mahogany tables, he says, “Life has been good.”

“At the moment, we are closely studying the export routes to the Americas and we have plans to standardise our output to international levels so as to enable us take advantage of foreign markets,” he says, quickly cutting in and interrupting the next question that I wanted to ask him.

 

The ever-widening net

 

But the palm oil business does not begin and end with Rivers, Delta, Edo, Abia, Cross Rivers or Imo state, which were at its center in colonial times. Today, hundreds of small millers like Ekiyor are opening shop across states including Ondo, Ogun, Anambra, Ekiti, Osun, Akwa Ibom and even some remote parts of Lagos.

 

Indeed, most of the millers have not attained all the sophistication of businesses that keep impeccable financial records or file tax returns, however, they are becoming more organised. (On an investigative visit to Osun State, to deepen this story, I interfaced with numerous millers who produce in their communities and supply wholesalers who come to them from Lagos and other cosmopolitan cities in the south west.) Many the millers however are modifying the production process and building brands in the South West.

 

“When my father passed on in 2011,” says Akin Oluwatobi, “he left us a large palm plantation from which he used to harvest and sell fresh fruits to palm oil millers.”

 

Oluwatobi saw the need to add some value to the fruits before passing it on in trade and therefore set up a palm oil processing mill at Okitipupa, a community some 162 kilometres from his hometown of Akure, in Ondo State.

 

“I was a banker in Lagos,” he says. “All I wanted to do was to start a business on the side to reduce my dependence on monthly salary,” Oluwatobi who is 37 and holds a degree in Agricultural Engineering from the Obafemi Awolowo University says.

 

He began with a curious mix of locally fabricated machines: a Separator, Boiler, and Presser. In all, it cost him less than N500,000 to set up the mill. “It wasn’t easy to get all the machinery to do the extraction, but when I was able to clear that problem, the whole process of production was more seamless. And the fact that I have my own supply of palm fruits was an advantage.”

 

But he tells of how at the beginning, he was mistaken in handing the mill over to a relative while he continued to work in Lagos.

 

“It was a clear mistake. I almost lost the business to mismanagement,” he says, his voice betraying disgust and regret. “I knew it was a profitable business but the relative I handed it to kept declaring loses. When I couldn’t take it anymore, I resigned to focus on the business.”

 

In the first few months, he introduced better accounting practices, cut down on expenditure, and worked hard at expanding his customer base. The business broke-even, less than a year and half later.

 

Asked about how profitable the venture has been six years after taking over, he says “two years ago, I demolished the mud house that we inherited from our father and erected a modern building in its place, from the proceeds of this business. Presently, I am supporting two of my brother in university, one is concluding his bachelors degree and the other just started his masters degree.”

 

Interestingly, it is not just SMEs that are enjoying profitability in the palm oil business, sparking hopes that like crude oil, the export of palm oil could play a bigger role in government finances, poverty alleviation, and attract foreign exchange to Nigeria. Big players are also reaping impressive returns.

 

Sweet notes under a big sky

In the last two years, Okomu Plc and Presco Plc, the only palm oil processing and distributing companies listed on the Nigerian Stock Exchange have consistently outperformed their peers who specialise in refined petroleum products distribution.

 

Both companies posted better results than Total Plc, Mobil Oil Plc and Forte Oil Plc. (Even though petroleum related activities occupy the commanding heights of Nigeria’s economy.)

 

First quarter 2017 results of Total Plc and Mobil Nigeria Plc showed that the companies grew revenue by just 35 percent and 11 percent respectively Y-o-Y (Year-on-Year). While Forte Oil Plc’s revenue dipped 8 percent. Only Oando Plc was able to stage three digit growth of 116 percent (It should be noted that the results as released by Oando Plc’s is the subject of an ongoing Securities and Exchange Commission investigation, though the company denies any wrong doing). On the other hand, the palm oil producers were better off. Okomu Oil Plc and Presco Plc grew operating revenues by 82 percent and 125 percent respectively within the same period.

 

Bottom line numbers were even more impressive for the palm oil producers as Okomu Plc posted 92 percent growth in PAT (Profit after Tax) while Presco recorded 179 percent growth in PAT.

The petroleum products marketers were not so successful, Mobil Plc recorded 78 percent drop in PAT, Total Nigeria Plc faced the same predicament with a 5 percent decline. Oando however saw PAT appreciate by 58 percent. The outstanding performance of the palm oil producers was the result of a combination of factors.

 

Back to the future

 

In Nigeria, a growing population, emphasis on local production, as well as a currency situation that saw most industrial user of palm oil look to local suppliers have seen palm oil’s profile as a revenue earner continue to rise. Coupled with this global demand for palm oil has buoyed.

 

But this is a re-enactment of a past were palm oil played a bigger role in Nigeria’s economy.

 

In the 19th century, West Africa was the centre of the global palm oil industry. That was before Asia stole the thunder. According to the FAO (Food and Agriculture Organisation), West Africa’s export of palm kernels began in 1832 and by 1911 the region was responsible for 157,000 tonnes in export annually. Nigeria contributed about 75 percent of that output.

 

With Nigeria and Zaire at the forefront, Africa continued to lead the world in production and export of palm oil and associated products throughout the first half of the 20th Century. Indeed, the whole circumstances that led to the exile and eventual death of King Jaja of Okpobo centred on the desire of the British to have greater control of the palm oil trade routes in Nigeria.

After independence, in the early 1960s, palm oil from Nigeria accounted for 43 percent of global output and made enormous contribution to the young nation’s GDP (Gross Domestic Product) alongside cocoa, groundnut and tobacco export.

 

But at present, Indonesia and Malaysia account for 84 percent of global production, while Nigeria accounts for a pastry 7 percent of global output.

 

As at year end 2015, Nigeria ranked 5th highest producer of palm oil managing to eke out an estimated 0.94 million tonnes of palm oil. Asian players including Indonesia, Malaysia, and Thialand were the top producers, accounting for 33.4 million tonnes, 19.9 million tonnes and 1.8 million tonnes in output respectively. Even Colombia, which recently joined the ranks of palm oil producers outpaced Nigeria by 0.26 million tonnes output in 2015.

But the small SMEs that dot the palm tree-bearing-states in Nigeria are working to restore the palm oil’s significance to Nigeria, albeit, it has been an uphill task.

 

Sanctuary of hard workers

For SMES that play in this sector, a plethora of challenges line the path to success. Chief among them is access to land. Also, lack of finance, the burden of multiple taxation, scarcity of specialised machines for production, as well as poor infrastructure (especially roads) make it difficult for them to operate.

 

“But we can’t stop,” Ekiyor blares out in a strong baritone voice when I ask him about how millers are wading through the labyrinth of challenges.

 

“It was not easy at first, but things got better eventually,” he says of his experience starting out. “Land is a major problem with this business, I would have had to pay a huge sum if I were not from this community. Added to that, none indigenes have to pay all sorts of levies to different interest groups before they can operate on any land in the community.” That is the case with many communities in Nigeria.

 

Oluwatobi who operates his mill several kilometres away in Ondo State faced challenge with land acquisition. He tells of how he had to pay two sets of people who laid claim to the land upon which he established his mill. In the end, he discovered that only one group was authentic. Also, he says, “from time to time, I have to give out money to separate groups in the community, especially during festive seasons to keep the peace.”

 

In terms of raising money for business, he says, “what startled me most is that even though I am a former banker, when I approached the bank for which I used to work for a business expansion loan, they declined. They just would not give me credit except I joined and applied with the backing of an association.”

 

But there are even more subtle challenges which the SMEs face. Th process of getting machines and fresh fruits could be an uphill task. They rely on locally fabricated machines, which often breakdown and time is wasted before spare parts are available. The poor state of the steel industry in Nigeria, means that there a few foundries that make machines that service the palm oil milling industry. Often, when a new miller is about to embark on production, a deposit is made with the local fabricators before the machines are crafted.

 

To overcome the challenge of getting fresh fruits, locals now plant high breed varieties of palm trees that bear fruit within three years. However, the new trees face the challenge of herdsmen. Often some herdsmen lead their flock into plantation where small trees are being groomed and devastate the crop.

 

The challenges notwithstanding, the industry continues to grow and new SMEs continue to spring up, signalling that even though the process of making palm oil is cumbersome, the returns are good. For the small millers, the hope is that as profitability increases, the process of refining for palm oil will become less cumbersome, but that has not happened in many places.

Inside the refiner’s fire

Typically, the palm oil refining process begins with the removal of the palm fruits from the fruit bunch. Then the fruits are per-boiled to soften them and to allow for easy removal of the sap.

 

When the sap has been successfully removal, it is mixed with water and heated. As this is being done, the palm oil is scooped off.

 

“You came at a time when we had perfected the process and now use more sophisticated machines, rather than our hands,” Ekiyo tells me as I express my opinion about the level of work the producers undertake. “This is not for the faint hearted,” Ekiyor says, smiling from cheek to cheek.

 

But for a product whose demand keeps increasing, much investment is been pour into the value chain in a bid to meet domestic and international demand. Palm oil is used as an input in the production of soap, shampoo, pomades, biscuits, detergents, noodles as well as bio fuels. It also serves as an input in the preparation of local delicacies.

 

Government, unions to the rescue

In recognition of the importance of the product government, has made some pronouncements and procurements to enable the value chain work better.

 

Most of the interventions have affected the milling and plantation aspect of the value. There are however efforts from other quarters to make things easier for those operating in the palm oil value chain.

 

On the afternoon of 18, March 2016, Nigeria’s minister of state for Agriculture, Heineken Lokpobiri assured a small group of oil palm growers that government is commitment to helping them access loans at single digit interest rate. He also said that government had procured 73 motorized oil palm harvesters to ease the suffering and losses that farmers experience. A year and half after those pronouncements, what government has been done remains a drop in the ocean.

To this end, Igwe Hilary Uche who is the President of the Palm Growers Association of Nigeria, has said that government should make more high yield palm seeds available to growers across the country.

 

While indicating that oil palm has more than 360 value chains, Uche notes that twenty hectres of plantation of oil palm can engage more than 2,000 workers, while one automated oil processing plant can employ more than 3,000 persons.

 

“This is apart from numerous others that can indirectly earn a living through sales and supply of the by-products” he notes.

 

Making a recommendation to the government, Uche states that if six automated oil palm processing plants could be established in each of the 24 states with the potential to grow oil palm, unemployment would be greatly reduced.

 

While government is yet to take concrete steps at adopting these recommendations, across Nigeria, the small palm oil producing SMEs are striving to fill that gap. So, today, someone somewhere in a Nigerian palm oil growing state is making the effort to see to it that, palm oil is enthroned as king.