June 18, 2018. It is a sunny Monday afternoon in Umuagwo, 26 kilometres from Owerri, the Imo State capital.
Benson Umeh is in his usual blue shorts and sleeveless white shirt, with a bowler hat to match.
Umeh is moving from one corner of his palm oil mill to another, issuing orders and directing his workers on what to do at each stage.
“Hey Obinna, put more water in the boiler. And make sure you turn it when it reaches 100 degrees,” he shouts.
None of Umeh’s eight staff members is well educated or a scientist, but each of them knows when the water boiling point hits 100 degrees. This is the sophistication that goes with light manufacturing.
Umeh is in a hurry. He has an order from a palm oil trader in Lagos to produce 4,000 litres in 24 hours. Thirty percent of the payment has been made. It is a bit sudden for a small-scale palm oil miller like him, but this is the nature of the business.
Palm oil is priced in 25-litre gallons in Umuagwo and many communities in the country.
So, Umeh must produce 160 gallons to meet the demanded 4,000 litres.
Each 25-litre gallon costs N7,000 to N9,000 to secure. But Umeh and his new-found customer have settled on N7,000 for a 25-litre gallon.
If Umeh succeeds today, he will go home with N1.12 million.
So, this is a marathon. His palm fruits, also known as fresh fruit bunches (FFBs), are ready to go into the boiler now.
Umeh gets his oil palm fruits from his community, Umueru, one of the villages in Umuagwo. He used to get them from a company known as Risonpalm Limited, but this company, now known as Siat, has been acquired by a big player, Presco, and no longer supplies FFBs to small-scale millers like Umeh.
His biggest challenge is that the supply of oil palm fruits is not regular. He goes to other villages and several plantation owners in search of his most important raw materials.
Umeh is lucky to have a semi-mechanised Mercedes milling machine, which he bought after selling his piece of inherited land. It cost him N2.5 million five years ago. It is not a typical motorised machine often procured by wealthier smallholder farmers and millers, but it has an interconnection of critical parts such as boiler, conveyor, presser and digester.
Cooking of oil palm fruits starts in the boiler. Ebuka, one of Umeh’s workers, turns the mash.
Five minutes after, the conveyor moves the fruits to the digester to release palm oil in the fruit. It does this by breaking down oil-bearing cells. Minutes after, the axle rotates and powers the blades in the digester.
Next is pressing. The presser applies mechanical pressure on the digested mash to squeeze oil out of a mixture of oil, moisture, fibre and nuts.
With the help of hydraulic press, the oil moves to a pelling or dump pit. This is the final process in Umeh’s mill, but it is certainly not the last in a fully-mechanised mill, where a pump would move the oil further into clarification tank.
In fact, in a fully-mechanised mill, there is always a room for the second pressing to recover residual oil for use as soap stock or by manufacturers. For Umeh, this means procuring another piece of equipment, which he cannot afford at this point.
At 7pm, Umeh is only able to produce 2,880 litres. The staff members are tired because they are applying so much energy.
The generator powering the machine has been on since morning and is showing signs of breakdown. Umueru has not had power supply from its energy distribution company in the last 23 days and every small-scale miller is using one or two electricity-generating sets. Umeh himself is tired and needs to stop at this point. He punches his calculator and discovers that over 115 gallons are down. That is N806,400 in the bank.
“If I had had a motorised milling machine, I would have finished this job before 2pm,” Umeh tells this writer, who has waited all day to learn how this business works.
“This mill looks small, but I can tell you that people from Kano, Abuja and Lagos place orders here,” he discloses.
Five minutes into the interview, the Lagos-based palm oil trader calls.
An agreement is reached that Umeh will continue the next day, but he must deliver the rest before 3pm. A truck will be available around 3.10pm to ferry the gallons to Lagos.
However, this comes with a cost. Umeh’s price is reduced to N6,850. The trader is ready to pull out for the breach of agreement except N150 is deducted from each gallon. Umeh is a sad man, but he is still going to have N1.096 million in his account.
“So sad, but at least, I hope to get a profit of over N400,000,” Umeh says.
No businessman openly discloses his profits, but Umeh and I have established a bond.
“It is stressful and can be heart-breaking, but it is also a good business,” he explains.
“There is so much potential in small-scale milling, but the problem is that land and plantation owners are often different from millers. I look forward to acquiring some hectares of land to plant my own fruits,” he says.
Umeh explains that another major reason he is not able to meet his target is that many plantation owners use species of oil palm seed known as ‘Dura’.
“This type does not produce much oil. The other species, called ‘Tenera’, produces much more oil, but it is not always easy to find,” he says.
“I can produce 75 litres in one press if I am using Dura, but this number rises to 125 to 150 litres if I am using Tenera,” he discloses.
“This is where the research institutes come in. The biggest challenge we have in the agriculture sector is the seed. Imagine what is lost every day on the back of poor seedlings,” he laments.
Umeh is particularly not a newbie in palm oil business. He won the United Nations Industrial Development Organisation (UNIDO) award on palm oil milling in 2012, and has been visited by many organisations that wanted partnerships.
“Sometime in 2013, UNIDO and another organisation promised to invest over $50 million in palm oil milling in the country. I was selected as one of the beneficiaries, but one commissioner in Imo State bungled the whole thing, because he wanted 10 percent,” he tells me.
‘Ten percent’ in public or civil service in Nigeria is a synonym for bribe. Once you get a financial favour or contract from a government ministry, department or agency, public or civil servants would automatically demand 10 percent of the gross amount.
Raw material supplier
In spite of that, Umeh believes that there is so much money in the business.
“Once you produce oil, someone will buy. There is a market for it everywhere. In fact, there is money in the mills,” he says.
He is also a raw material supplier to many firms in Nigeria. Firms producing margarine, ice cream, beverages, and detergents buy oil, which they use as a raw material, from him.
“There is a company called New Planet in Onitsha that buys oil from us. In fact, companies send individuals to come here and buy oil on their behalf. Some big companies buy palm oil from us and process it further to get olein, vegetable oil or palm kernel oil,” he adds.
Checks show that palm olein is mainly used for the manufacture of margarine, cosmetics, candles, personal care products and agrochemicals, among others. Also, palm kernel oil (PKO) is often low in fat and is applied on foods, confectioneries and bakery products.
Remi Emeh Enterprises
It is Tuesday morning in Umuogbuanu, another community in Umuagwo, where Remi Emeh Enterprises is located. This is where Remi Emeh makes his daily bread through palm oil milling.
Emeh’s business is registered at the Corporate Affairs Commission and he has over 10 workers. He pays taxes to the government and operates a business account in a commercial bank.
But unlike Umeh, his milling machine is small and crude.
“When people, banks and government look at my books, they wonder how a small-scale miller like me, who uses a crude milling machine, can be so good in keeping his books,” he tells me.
Emeh’s machine may look obsolete and crude, but it is a typical example of an old wine which tastes better with age.
The machine has the capacity to churn out 150 gallons (of 25 litres), if there is no breakdown. However, one major finding is that the machine requires a lot more human energy to accomplish a task, meaning that much more people are often engaged during production.
The dollar connection
Emeh explains that his small machine feeds a lot of manufacturers. According to him, manufacturers in Ibadan, Lagos, and Onitsha place orders from time to time.
“A company from Isele-Uku in Delta State has always been here to buy its raw material,” he says.
But this is not the whole story. Two years ago, Emeh and many small-scale millers around made huge sums of money. The secret was an upsurge in demand for the product. There was a cutback on smuggling and importation of palm oil into Nigeria. The result was that demand overshot supply. Nigeria produces 900,000 to 1.3 million metric tonnes (MT) of palm oil, but national demand is above 2.1 million MT. This leaves a huge gap of 800,000 to 1.2 million MT.
For smallholder palm oil farmers and millers who were in business two years ago, this was an opportunity.
“What we did was to produce much more and store in big warehouses. Before the scarcity of 2016, a 25-litre gallon of oil cost about N5,000 to N7,000. But when the scarcity started in the middle of the year, the price rose to N25,000. This was almost 500 percent increase.
“Manufacturers, households and even foreigners were all over the place looking for it. This was when dollar-to-naira exchange rate was almost $/N500. So, manufacturers were looking for local alternatives.
“One of us made N52 million within two months. In fact, some of us were paid in dollars. We had to open domiciliary accounts,” he discloses.
“This village smelt like palm oil. We engaged more youths to work in our mills, but some of them even left us and started theirs,” he adds.
Women are an integral part of the value chain, Emeh explains. They are the ones buying the fresh fruit bunches, he says.
He regrets that the business was, at some point, hijacked by middlemen, who were then making more money than millers.
“The industry is not organised. If it were, many of us would be far richer,” he quips.
He says that small-scale millers are the ones satisfying over 80 percent of the market today.
The Adapalm challenge
Emeh and many small-scale millers would have been better off had they not suffered a set-back in the hands of Adapalm, a palm plantation owned by the Imo State government.
Adapalm was managed by Imo State government prior to November 2011. But it was handed over to Roche Group through a public private partnership by Rochas Okorocha, Imo State governor.
Before the handover, small-scale millers had depended on Adapalm for the supply of their biggest raw materials – fresh fruit bunches. Adapalm itself had appointed some agents to act as buyers for small-scale millers. So, these millers would pay through the agents and get their oil palm bunches through them.
But when Adapalm was handed over to Roche Group, the new company claimed it was not aware that many small millers had paid money for the raw materials.
After interventions by leaders of communities in Ohaji/Egbema Local Government Area and government officials, Roche Group promised to supply raw materials to those who paid earlier.
But the company made little progress in meeting the inherited obligations, leaving in 2016 without meeting many of them.
Adapalm was later handed over to Imo-VTU in 2017, but this new owner is not interested in any negotiation.
When I contacted Jude Oparah, operations manager, Imo-VTU Oil Palm, he said the deal was not between Imo-VTU and small-scale millers in the first place. This may imply that the company will no longer listen to these heavily-owed small-scale millers.
“I have over N2.5 million trapped there,” Emeh says.
“This shows you how much policy inconsistency can hurt businesses. Many people who were in palm oil business are no longer in it now because of this shock,” he says.
On leaving Emeh’s mill, a man walks close, clutching some papers. Emeh introduces him as Chukwu Egbuaba, who was one of the agents. Egbuaba has some invoices valued at over N25 million, given to him by many smallholder farmers and small-scale millers.
“This says a lot about how bad politics here can be,” Egbuaba, who owns CD Palm Oil Mills, tells me.
“This is a big problem for communities in Ohaji/Egbema. A lot of youths and millers lost interest in palm oil business after the new owner decided not to do anything about the humongous debts,” he adds.
Business suffering
The business of palm oil is suffering. This is because smugglers are having a field day, bringing in Malaysian and Indonesian oil through Ghana.
International data show that palm oil worth 400,000 tonnes per annum are smuggled into the country annually.
Due to smuggling, Romanus Oguegbu, managing director of a palm oil mill in Uburu, another 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 also affects the number of workers he employs. The number of workers has fallen to eight, from over 15 during peak demand. The reason, according to him, is not basically because June is not a peak season.
“It is about low demand. People still buy from us, but I learnt that they bring Malaysian oil to Kano. Some people who used to come here now buy Malaysian oil,” he says.
The small players are not the only ones facing this challenge.
“This discourages further huge investment by investors like us and creates unhealthy competition in the market,” Felix Nwabuko, managing director of Presco, tells me.
Santosh Pillai, managing director, PZ Wilmar, another big palm oil producer, tells me that there are illegal and questionable imports into the country, which means that genuine investors do not have a level playing field.
“Visit any supermarket or traditional market in Nigeria and you see that plenty of imported vegetable oil, which is banned in the country, is easily available. The current policies are only aiding cross-border trade and smuggling. The leading domestic refineries in Nigeria are facing a crisis and many in the country are not operational,” he says.
Palm oil is currently one of the commodities restricted by the Central Bank of Nigeria (CBN) from accessing the foreign exchange market.
Buying smuggled poison?
The situation is a bit different at
Anambra/Imo Produce Association in Ihiala, Anambra State.
There is palm oil here but no one is buying.
“You see that everywhere is empty because no customer is here. People used to come from Kano and Lagos to buy, but where are they now?” Lazarus Ifeanyi, a palm oil trader, asks, rhetorically.
“They buy oil smuggled into the country. But the truth is that they are buying poison, because chemicals are added in the preservation and storage of such oil, but ours is natural. More so, palm oil is native to Nigeria,” he says.
Rose Ikechi, a woman who owns a small-scale mill, says that she has tasted palm oil sold in Lagos and notices a clear difference with hers.
“Something has to be done about this,” she admonishes.
A visit to Uli Palm Produce Beach says a lot about the state of palm oil business in the country. No one is there and no transaction takes place. But this place used to be a beehive of activities.
Similar tale in Akwa Ibom
It is even worse in Okim-Ejijor village, Ikom Local Government Area of Akwa Ibom State.
Gift Uduakabasi plants cocoa and palm on the same piece of land. But she now wants someone to buy each of her palm trees for N20,000.
She believes that her money is stuck in those palm trees.
‘CBN not interested in funding us’
Many millers claim that the CBN and commercial banks have no plans to fund them.
“A bank here tells us to borrow and repay every week,” Ahamefula Onyekachi, a small-scale miller, says.
Small-scale millers say they can refund loans in two years as long as it is single-digit.
But the case of smallholder plantation farmers is different. This set of farmers is not satisfied with CBN’s funding approach.
The CBN runs a programme known as Anchor Borrowers Scheme, which is targeted at funding over 12 crops, one of which is oil palm. The CBN held several meetings with them in the past, but there is a disagreement over tenor of funding.
CBN wants them to take its loans and return it in five years, but players want more time as it naturally takes 10 to 13 years to even make a profit.
Nothing is lost in oil palm
Experts say oil palm is so significant that nothing is lost in it. Apart from palm oil, it can serve as biofuel, which is economical, says Malaysian Palm Oil Board.
Some other by-products of oil palm include fertilizers, animal feed and phenolic antioxidants.
From palm pressed fibres (PPF), it is possible to get de-oiled fibres, fuel, phenolics, and pharmaceuticals. In fact, almost all food and beverage manufacturing firms need palm oil as raw material.
Where is Nigeria?
Nigeria’s palm oil story is that of pratfall, similar to falling from grace to grass. By early 1960s, Nigeria had been producing 45 percent of global palm oil output, but today, the country only scratches 1.7 percent.
According to Peter Kilby, a United Kingdom-based researcher, who is now 82, Nigeria earned £40 million in foreign exchange from export of palm oil and palm kernels in 1965.
But today, the country is fifth on the ladder, producing between 930,000 metric tons (MT) of palm oil and 1.3 million (MT) annually, behind Indonesia’s 36 million MT output; Malaysia’s 21 million MT; Thailand’s 2.2 million MT, and Colombia’s 1.3 million MT.
Recent data make matters worse. The National Bureau of Statistics (NBS) said in the second quarter of 2017 that Nigeria imported N7 billion worth of Crude Palm Oil (CPO) within the three-month period, with Indonesia accounting for 76 percent of the total import. For the avoidance of doubt, CPO is the red palm oil which is sold in the open market and used in daily meal.
Solidaridad Networt, an international organisation facilitating the development of socially-responsible, ecologically-sound and profitable supply, released its data last year showing that Nigeria imported 552,000 MT of CPO in 2016.
This has always been Nigeria’s story since crude oil boom of 1970s. With crude oil market at its peak in the 1970s, successive military governments abandoned palm oil mills and withdrew support for the industry.
Kilby’s research shows that the country had 67 oil palm mills in 1964 across the country, with fruit capacity estimate of 201,000 tonnes.
Old plantations race back to life
However, things are gradually changing. Okitipupa Oil Palm Plc is now ready for business after five years of closure. Rotimi Akeredolu, Ondo State governor, has handed the company over to the owner, Mobolaji Osomo, Nigeria’s former minister of housing and urban planning.
The firm has two mills – one at Okitipupa and the other at Ikpokemuyi in Ondo State. The former has 20 tonnes per hour capacity while the latter’s capacity is estimated at 22 tonnes per hour, senior officials of the firm tell me.
The mill is currently old and needs total overhauling. The board of the company sat two weeks ago and is expecting an investor to take over the mills and resuscitate them.
Already, Victory Crystal Investment, a multinational oil company, is interested and wants to pump $13m to resuscitate the mills, BDSUNDAY gathered.
Okitipupa has plantations at Ikoya, Ilitutun, Igbotako, and Omotosho, all in Ondo State, and the plantations have been active even while the mills were abandoned.
Firms in the food and beverage sub-sector buy oil palm from the plantations, a senior official said.
“It needs total overhauling because the mill is old. It was established in 1984 and there are certain technologies that need to be brought in,” the official said.
BDSUNDAY also gathered that Araromi-Ayesan Oil Palm, which was a shadow of itself early last year, is now on. It has 10,468 hectares of plantations and already has a board chaired by Femi Okunniyi.
The old players – Presco, Okomu and PZ – are expanding investments too.
Rising production
Around 2013, Nigeria’s output stagnated at 900,000 to 950,000 MT, but in the last five years, output has raced to 1.3 million MT, experts tell me.
With national demand standing at 2.1 million MT, it is only investment and consistent policy that can see the country plug 800,000MT gap in the industry, experts say.
Henry Olatujoye, national president, National Palm Produce Association of Nigeria (NIPPAN), tells me there has been increase in palm oil production in Nasarawa, Adamawa, Cross River, Ondo, Edo and many states, and many large firms are organising farmers into clusters and providing them with high-yield seeds.
What Nigeria needs to do
Experts say because of the huge demand-supply gap, the country must provide incentives to investors to plant more trees.
Olatujoye of NIPPAN says that Nigeria needs to plant 2 million more hectares.
“Large and established firms are only cultivating 400,000 hectares, which are insufficient. Smallholder farmers are doing above 900,000. However, established enterprises need to cultivate up to 2 million hectares to plug the gap,” he says.
This may require over N700 billion investment.
Experts add that there is a need to train smallholders constantly on modern agronomic practices and spacing, while designing a specialised funding scheme for them.
