It is bad times for palm oil makers as poor border policing hits the margins and prospects of industry players.
The government must now protect local players to save their huge investments and encourage more direct investments.
Okomu’s first-quarter (Q1) financial statement shows that revenue declined by 42.5 percent to N4.2 billion, from N7.3 billion in same period in 2018. Similarly, profit after tax declined sharply by 71 percent to N1 billion in Q1 2019 from N3.5 billion in Q1 of 2018. The loss is further reflected on the company’s shares on the exchange board as it dropped by four percent in trading during the course of last week and a year-to-date loss of 2.89 percent.
Presco has not released its result, but experts are not optimistic. Smaller players are also hard hit by the state of the market.
Romanus Oguegbu, managing director of a palm oil mill in Uburu, a community in Imo State, is cutting down production. He owns a machanised mill and usually produces 400 gallons (of 25 litres) each week. But this has dropped by half. This has also affected the number of workers he employs. The number of workers has fallen to eight, from over 15 during peak demand.
Santosh Pillai, managing director, PZ Wilmar, a big palm oil producer, told BusinessDay that there are illegal and questionable imports into the country, meaning that genuine investors do not have a level playing field.
“It discourages further investment by investors like us and creates unhealthy competition in the market,” Felix Nwabuko, managing director of Presco, said.
According to a report by the Food and Agriculture Organisation of the United Nations, “It is estimated that Nigeria has lost $10 billion in annual export opportunity from groundnut, palm oil, cocoa and cotton alone due to continuous decline in the production of those commodities”.
Palm oil is currently the most consumed edible oil in the world, with Malaysia and Indonesia being the top major producers. Palm oil is on the list of Central Bank of Nigeria (CBN)’s 41 items, but it is still being smuggled into Nigeria through Kano.
Local sales peaked in 2016 during the foreign exchange crisis in Nigeria, but the product is now seen everywhere, including those that are adjudged substandard.
According to WorldAtlas, Nigeria is ranked 5th position among the top palm oil producing countries in the world with 970,000 metric tonnes out of the 2.1 million metric tonnes of local demand. Indonesia and Malaysia are ranked 1st and 2nd, with 36 million metric tonnes and 21 million metric tonnes respectively, leaving them as major exporters of palm oil.
Ninety percent of palm oil consumption comes from the food industry while the non-food industry accounts for 10 percent.
Products such as noodles, vegetable oil, biscuits, margarines, shortenings, cereals, baked items and cosmetics are made from palm oil.
Okomu oil, one of the industry’s big players in 2018, disclosed that it was planting 11,400 hectares at a new Extension 2 Plantation in Ovia North East Local Government Area in Edo State. This is after acquiring two additional machines that produce 30 metric tons per hour mills, valued at $50 million.
Experts say poor performance was due to weaker palm oil prices and consumer demand as well as the country’s porous borders which encourage smuggling of the product.
Influx of the foreign product into the market has diminished the sales of indigenous producers who despite battling high cost of production and operating cost incur losses which make their business suffer and as a result reduce contribution to economic development from the sector.
“The industry needs to be protected to ensure investors keep creating jobs and adding value to the natural resource,” Remi Emeh, CEO of Remi Emeh Enterprises, a small-scale palm oil maker, said.
Gbemi Faminu
