Nigeria loses out on $62bn global annual palm oil market

Myriads of downturns have hindered Nigeria from gaining a substantial share of the global oil palm industry now worth $62 billion annually, casting doubts on government’s ability to grow non-oil revenue.
Nigeria’s oil palm industry’s contribution to global market share is a meagre 1.40 percent as of 2018, according to data from United State Department of Agriculture (USAD), as against 45 percent in 1960. If the country had maintained its 45 percent market share today, it would have been earning $27.9 billion from this crop alone.
Oil palm refers to palm tree or the palm that produces oil. Crude palm oil (CPO) is the edible palm oil.
“The country’s production has been stagnant,” said Steven Babajide, country representative, Solidaridad’s Network, in an emailed response to questions.
“Even though big plantations are coming up, smallholder production which constitutes over 80 percent of the total palm oil output in Nigeria has continued to drop due to ageing trees and poor management,” he said.
 “The problem is further compounded by the inefficient processing technologies leading to 25-50 percent loss of crude palm oil,” said Babajide.
Igwe Uche, national president, Oil Palm Growers Association of Nigeria (OPGAN), in a response to BusinessDay questions, said the production of smallholder farmers who produce the bulk of what the country consumes have been stagnated over the last five years.
“Demand for crude palm oil is increasing because our population is fast rising and industrial need for it is also on the increase,” Uche said.
Analysts at Afrinvest Research Ltd, in their 2018 outlook for the oil palm industry, attributed the production downturn that damped market share to traditional and crude production methods by smallholder famers that account for 80 percent of the industry supply.
The report also identified other stumbling blocks to include the country’s focus on exploration and export of crude product, persistent low yields per hectare, and the impact of the civil war on oil palm producing communities.
“This culminated in the country becoming a net importer of the product in the 1980s as rising domestic consumption could not match sluggish growth in production,” said Afrinvest Research analysts.
Nigeria’s share of global production oil palm, which moved to 73.30 million metric tonnes in 2018 from 1.20 million metric tonnes in 1964, is abysmally poor.
Indonesia produces 41.50 million metric tonnes (MT), as against Malaysia’s 39.50 million MT. Both accounted for 80.10 percent of global production between 2016 and 2018. This compares with Thailand (2.90 million metric tonnes), Columbia (1.50 million metric tonnes), and Nigeria (1.0 million metric tonnes), according to USAD.
Experts have identified the root cause of the problems bedevilling the industry and have also proffered solutions to the downturn as the country seeks to diversify the economy away from black gold known as crude oil.
“Nigeria will need to plant at least 300,000 hectares in the near future, which is an investment of over N700 billion and it will take us several years,” Santosh Pillai, managing director of PZ Wilmar, said in an interview with BusinessDay.
“The industry requires massive investments and the government has to come with policies which will support development of the oil palm industry in a holistic manner,” he added.
In 2017, total industry production settled at 970,000 metric tonnes while consumption was 1,355,000 million MT, leaving a deficit of 290,000 metric tonnes.
Crude oil palm was among the 41 items excluded from foreign exchange market by the Central Bank of Nigeria in 2016.
The policy, in addition to growing population, added impetus to the earnings of the two dominant producers – Okomu Nigeria Plc and Presco Nigeria Plc – as local demand spiked without corresponding increase in supply. But the situation is gradually changing owing to smuggling of CPO from Malaysia to Ghana, and then to Kano into Nigeria.
“We must do something about smuggling,” Felix Nwabuko, managing director of Presco, told BusinessDay.
“It discourages further investment and creates unhealthy competition in the market,” Nwabuko said.
Analysts at Afrinvest see a downside risk for companies if the Federal Government assents to the African Continental Free Trade Agreement as the country’s participation means CBN will have to de-list some restricted items while open borders will pave the way for influx of cheap product from Malaysia and Indonesia.


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