• Thursday, February 22, 2024
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Analysts call for caution on palm oil sanctions

palm oil

Analysts say Nigeria must be cautious on meting out sanctions on firms importing palm oil as local production cannot meet a surging demand.

Buhari recently directed the Central Bank of Nigeria (CBN) to blacklist companies importing or smuggling palm oil and other products into Nigeria, according to Central Bank Governor Godwin Emefiele.

Analysts say sanctions should be meted on firms smuggling the product into Nigeria, but not those importing it legally for factory use.

Palm oil importers have been restricted from accessing foreign exchange in the official market since 2016, but they can obtain FX from elsewhere to import. But the restriction from FX market has made importation of the product difficult, prompting people to resort to smuggling.

Nigeria produces 930,000 MT to 1.3 million MT, but demand is about 2.1 million MT, industry sources say.

Mogaji African Farmer, head of agriculture and agro-allied group, Lagos Chamber of Commerce and Industry, (LCCI) said such sanctions may do in consumer companies that depend heavily on palm oil for production.

“How will they survive?” he asked.

“We are heavy consumers and light producers. So, this policy that they want to do is a ‘no no’ for me. And if you also ask the experts it’s a ‘no no’ for them too,” he said.

“What will other companies that make soaps and detergents and vegetable palm oil do? What will happen to them?

“With climate change, are we sure that we will get the yields that we require and almost all the palm oil companies are complaining of labour. Even if there is land, there may be conflicts from the community,” he added.

He said it is critical to give importers one or two years before implementing the policy.

“Are they releasing long-term capital? Can they buy the equipment required for processing? Government should get some accredited companies to grow those seedlings. The real players need modern equipment,” he said.

A lot of investments have gone into oil palm plantations in recent times.

Santosh Pillai, managing director of PZ Wilmar, told BusinessDay that his firm’s investment in oil palm plantations in Cross River State alone is approximately $150 million.

Presco’s investment is valued at N75 billion. Its capacity is 63 percent in the peak season and 24 percent in the lean season, Felix Nwabuko, managing director of Presco, told BusinessDay recently.

Okomu, another big investor in the industry, is planting 11,400 hectares at a new Extension 2 Plantation in Ovia North East Local Government Area in Edo State.

The palm oil maker acquired two additional 30 metric tons per hour mills, being built at $50 million.

Despite these investments, supply gap is still high as some of the oil palm plantations are yet to fruit.

Abiola Gbemisola, consumer analyst, Chapel Hill Denham, said there is a need for deliberations between the importers and CBN.

“On the back of what is happening, crude palm oil in the international market has declined and this is due to the fact that weather conditions have been favourable because the yield on palm oil is high. So, this led to glut. It will be easy for them to import through the Nigeria ports. But the reason why they cannot bring the palm oil into the Nigerian ports is that tariff is high— about 35 percent. So, that is why they are bringing it through neighbouring countries,” he explained.

“This is not the time for the ban. I will be fully in support of the ban if there is palm oil abundance in Nigeria. When you look at total production by local producers and you justapose it against local demand in Nigeria, you will see that there is a large deficit. When there is deficit, people will import.”

He said already, Presco and Okomu recorded a reduction in revenue importation between last year and this year.

“The importers incur high cost. The ability to pass those costs to the final consumer is constrained due to the weak purchasing power in the economy. They might not be able to pass it to consumers and they might just have lower profit. Most companies that really use a bulk of it might suffer,” he explained.

 

Bunmi Bailey &David Ibidapo