Okomu Oil Palm Company Plc and Presco Plc, the biggest palm oil producers in Nigeria, have seen their combined profits surge by 254.6 percent in the first nine months of 2023 to N44.39 billion from N12.52 billion recorded in 2018.
A BusinessDay analysis of the companies’ nine-month profits over the last six years show that the companies recorded their highest profits in 2023 amid rising production costs. Their combined earnings grew 30.8 percent to N44.39 billion in the first nine months of 2023 from N33.93 billion in the same period of 2022.
Okomu posted a profit of N20.92 billion in the first nine months of 2023, an increase of 189 percent compared to N7.24 billion in the corresponding period of 2018, while Presco recorded a 345 percent increase to N23.47 billion from N5.28 billion in the same period of 2018.
Nigeria’s manufacturing sector has been plagued by rising operating costs on the back of foreign exchange illiquidity, high-interest rates, and weak infrastructural amenities.
With manufacturers battling increased costs of doing business and declining profitability, Okomu and Presco’s prosperity has been described as impressive, causing them to maintain their positions as stalwarts in the palm oil production value chain.
Experts say several factors are propelling this growth for palm oil makers.
“We live in a time when demand for palm oil is rising astronomically,” Alphonsus Inyang, president of the National Palm Produce Association of Nigeria (NPPAN), said.
“The reason these two companies, and maybe some others, continue to rake in so much money is because of the growing demand for palm oil (crude, special, technical, and their derivatives). There are so many uses for palm oil that have been discovered over the years,” he said.
He added that the national and subnational governments are not doing anything about investing in the development of new palm estates or supporting smallholders to produce more so that the millers can aggregate and mill them, whereas palm oil sells the highest in Nigeria.
Analysts at CardinalStone Securities, in their July 2023 report, said that although China and India are the largest importers of crude palm oil (CPO) globally, Nigeria’s demand for palm oil has also remained strong.
They said: “Nigeria’s demand for palm oil has remained strong, with listed CPO manufacturers reporting strong volume growths in Q1 ’23 despite macro headwinds such as the cash crunch, which tanked output for FMCG and industrial goods companies.
“Between 2017 and 2022, total consumption grew by a compound annual growth rate of 6 percent, and we expect this traction to extend into 2023.”
According to the United States Department of Agriculture, the main drivers of Nigeria’s persistently strong CPO demand are the high urbanisation rate and the increasing demand for packaged foods with high palm oil content.
CardinalStone analysts said the major CPO manufacturers like Okomu and Presco have continued to report surges in supply volumes due to improved milling capacity.
“In contrast, relatively smaller players have mostly struggled due to the lagged impact of the H2 ’22 flooding, leading to a 353.2 percent jump in palm oil imports from Malaysia in the first four months of 2023. These supply shortages and Naira weakness at the parallel market led to a 37.0 percent year-on-year surge in the price of CPO,” they said.
Henry Olatujoye, managing director of Palmtrade and Commodities Development Nigeria Ltd, said the solution to the demand-supply gap “is our ability to convert our forex to plantation development, under good agricultural practices,” as foods like noodles, vegetable oil, biscuits, chips, margarine, shortenings, cereals, baked stuff, washing detergents, and even cosmetics are made from palm oil.
Inyang of NPPAN believes the industry has been suffering neglect by successive governments.
He warned that even the big players will be greatly impacted in the next financial year, as foreign exchange restrictions have been lifted on CPO and palm kernel oil.
He said: “It means that there will be an influx of palm oil and its derivatives into the country from neighbouring countries like Togo, Cote d’Ivoire, Benin Republic, and Ghana.”
“Huge numbers are going to come in as long as they can afford the FX, and this means the big players will also be importing from Malaysia, Indonesia, and Thailand. All these will impact the economy of oil palm in the next year, except the government does something about it.”