The Federal government’s policies may have led to the increased earnings for palm oil makers in the third quarter of 2019—the first time in the year in which they reported stronger revenue performance.
“In the first two quarters, we had a lot of problems in having to sell our products locally,” Graham Hefer, managing director of Okomu Oil Palm, said while reacting to the recently released third-quarter results.
Hefer said that after the Nigerian government shut its land borders, the impediments to sales faded off as there was a loosening of grip by illegal imports, creating an opportunity for the company to market its products more easily.
Nigeria shut its border with Benin in August to curb the smuggling of rice, palm oil, and petrol. So far, there have been reported increases in local rice production, though this is matched by price rises. But the policy also seems to have raised sales of palm oil makers, increasing their capacity.
According to the numbers released by the two listed firms in the industry, Presco, and Okomu, combined sales revenue nearly doubled to N11.8 billion in the third quarter of the year, from N7.7 billion in the preceding quarter.
Findings from the Q3 financial results of listed firms like Okomu Oil Palm revenue increased massively year-on-year by 89.9 percent to N7.0 billion in q3 2019 from N3.7 billion in q3 2018. Presco’s revenue increased marginally by 4.3 percent to N4.8 billion in q3 2019, from N4.6 billion in the same period of last year.
“If you look at their performance in the third quarter, it was good compared to the first and second quarters which was terrible. So, because of the border closure, their revenue and their company’s performance have improved,” Abiola Gbemisola, research analyst at Lagos-based Chapel Hill Denham said.
According to Gbolahan Ologunro, an equity research analyst at Lagos-based CSL Stockbrokers, there was scarcity of palm oil in the market due to shortfalls in the level of supply when compared with the level of local demand in the economy.
“So what we saw from them was that they were in a better position to push more of their products to the market. And they also took advantage of the border closure by increasing their prices marginally since consumers had no option than to patronize the locally produced oil.
“But I think that Okomu felt the impact more than Presco due probably a larger market share and better quality of products,” Ologunro added.
Palm oil is derived from the fruit of the oil palm tree, which is grown in tropical regions of Asia and Africa. Nigeria spends close to $500 million on the importation of the commodity annually, according to Central Bank’s governor, Godwin Emefiele.
While the importation was to meet the increasing local demands of a country once adjudged as the world’s largest exporter of oil palm in the late ’50s and ’60s, it negatively impacted the performance of local oil palm producers.
Palm oil producers benefited from the blacklisting of some 41 items including oil palm by the Central Bank of Nigeria in 2016 when dollar shortage fostered local demand of the agro-product. But the gains were short-lived as they complained of a high intensity of smuggling which negatively affected their sales.
In the first six months of this year, Presco recorded a 10.3 percent dip in revenues and while Okomu’s fell by33.3 percent.
According to analysts, the reason for the decline was due to the favourable weather conditions in the world’s largest crude oil palm producing countries such as Malaysia and Indonesia which had higher yield and production of oil palm.
This further led to lower crude palm oil prices in the international market making importation of the raw product cheap to import.
“Global palm oil prices were lower so it was easier to import. And because of the import restrictions in the country, people would go to the neighbouring countries like Benin Republic and smuggle them into the country,” said Gbemisola who was earlier quoted.
Oil palm price in Nigeria is believed to be relatively higher than international prices primarily due to import restriction on the commodity following the introduction of the Central Bank of Nigeria list of 42 foreign exchange excluded items in 2015.
According to data sourced from Bloomberg, oil palm prices trended southwards to $2,040/metric ton on June 18th, 2019 from $2,368 on August 15, 2018.
Despite the improvement in their revenues, it was not enough to reverse the decline in sales of their first nine months as Presco’s sales declined by 5 percent and Okomu’s was reduced by 7.7 percent.
