Industries’ thirst for palm oil sees prices surge by 120%

The price of palm oil has jumped by 120 percent in one year due to rising industrial demand and low supply.

In a market survey, BusinessDay found that the price of a 5-litre keg of palm oil rose to N11, 000 this month from N5,000 obtained in November 2023, indicating a 120 percent increase over the period.

Similarly, the price of a 10-litre keg of edible oil increased to N22, 000 this month from N10,000 reported at the same time in 2023, signifying a 120 percent price jump.

Demand for palm oil has doubled as cosmetic firms, pharmaceuticals and other manufacturers switch to palm stearin – a palm oil derivative – in replacement for tallow (animal fat), for the production of soaps, creams and drugs. Tallow is currently expensive, according to industry players.

Henry Olatunoye, former president of the National Palm Produce Association of Nigeria, said it is now critical for Nigeria to ramp up palm oil production through the conversion of large hectares of forests into palm plantations.

He said there is a need for Nigeria to implement friendly import policies to fill the present 1 million metric tons of deficit in the value chain.

“The demand for derivatives of palm oil is on the rise. For instance, stearin derived from palm oil has gradually replaced tallow, which is very expensive. So many cosmetic industries today depend on stearin for their usage. Also, pharmaceutical companies’ demand for it has increased,” he said.

“Climate change equally affects palm oil production. It reduces its supply. So, we see that while demand is becoming elastic, supply is now inelastic,” Olatunoye, who is also the managing director of FarmTrade Commodity Development, added.

Africa’s most populous black nation consumes approximately 2.5 million metric tons of palm oil annually, with local production currently standing at 1.4 million metric tons, leaving a deficit of 1 million that ought to be filled by imports.

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But according to Olatunoye, importation has now become difficult, owing to unfavourable policies and scarcity of foreign exchange, leaving the 1 million deficit needed unfilled.

Data collated from 2019 to 2023 from the National Bureau of Statistics (NBS) show that Nigeria imported 1.5 million metric tons of palm oil from Malaysia alone, spending about $600 million on imports annually.

Experts argue that this figure can be invested in ramping up local production.

Olatunoye said the country produces about 4,000 metric tons of palm oil per day, which is unable to meet local demand.

“We need about two million hectares of consolidated and urban estates before we can attain self-sufficiency as a country and then begin to export to other West African countries.”

Alphonsus Inyang, president of the National Palm Produce Association in Nigeria, said the global palm oil market is experiencing shocks on the back of new policies in Malaysia and Indonesia.

“Currently Indonesia only allows for the export of refined palm oil up to B20 standard,” he said in a telephone interview. “Plans are in the works for Indonesia to further raise the bar on the types of palm oil products for export.”

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He noted that Nigeria’s dependence on Malaysia and Indonesia for its palm oil needs is at risk if local production is not ramped up.

“This is an opportunity for Nigeria to increase local production, otherwise what has happened to cocoa may soon happen to the oil palm value chain.”

Nigeria ranks fifth in the world on palm oil production. Indonesia produces 50 million metric tons, Malaysia is second with 19 million metric tons, while Thailand is third with 3.28 million tons. Colombia is fourth with 1.9 million metric tonnes.

According to the Plantation Owners Forum of Nigeria (POFON), 80 percent of palm oil planted areas are either wild trees or managed by smallholders and medium-sized plantations, with an estimated oil yield of fewer than 0.5 tonnes per hectare.

Although efforts to double production are constantly adopted by the federal government through the Oil Palm Development Initiative (OPDM) by the Central Bank of Nigeria (CBN), issues around climate change are another factor Nigerian farmers have had to battle with.

Usually grown in tropical states, Nigeria’s palm oil supply in 2024 has been hit hard by climatic change effects, experts say.

Since the beginning of the year, many crops have been negatively affected by climate change – from excessive drought in northern states to floods that eroded about 107,000 hectares of farms in August/September 2024 across 33 food-producing states, according to data from the United Nations Food and Agriculture Organisation.

The floods destroyed large areas of farmlands, threatening food security in states like Taraba, Kebbi, Niger, Sokoto and Jigawa, and other parts of the country where food is produced.

A report by Vestance, an agricultural research firm, emphasised that the country has what it takes to increase production and compete with global players if effective trade policies are put in place.