Victor EzejaHighlights
-
Nigeria has great potential to produce palm oil on large scale for exports and local consumption but has since independence failed to develop the needed capacity
-
The country spent N299.6 billion importing palm oil in just six years
-
Experts urge government to invest significantly to boost productivity and make it major revenue earner
Prior to the discovery of crude oil in commercial quantities, Nigeria had controlled 43 per cent of global market share of palm oil supply but has become net importer today, putting pressure on its foreign exchange reserves, according to analysts.
For instance, the former Chairperson, Agricultural and Allied Group of the Lagos Chamber of Commerce and Industry, Mrs Edobong Akpabio, and a Development Economist with the Opportunity Research Group, Dr Aduku Ebikabowei, observed that palm oil was a major agricultural produce and top foreign exchange earner for Nigeria in the 1950s and 1960s. The country, which was once the largest producer of palm oil in the world at the time has presently dropped to the fifth position, according to a global data published by Statista.
Join our WhatsApp ChannelThe oil palm tree produces high-quality oil used primarily for cooking in developing countries. It is also used in food products, detergents, cosmetics and, to a small extent, biofuel.
According to Statista, the global palm oil production in the 2021/22 marketing year was around 73.8 million metric tons, increasing from approximately 73 million metric tons in 2020/21, with Indonesia (45.5 million metric tons ) and Malaysia (19.2 million metric tons) being the leading exporters of palm oil worldwide.
READ ALSO: The Oil Palm War in Nigeria – SPECIAL REPORT
Nigeria’s palm oil production in 2022 was put at 1.4 million metric tons, which is less than 2 per cent of total global market production. Today, the country has not only fallen short in the export of the product but also found it difficult to meet local demand, leading to importation.
The Central Bank of Nigeria had in 2015 placed restrictions on importers of the product from having access to the official foreign exchange market. This was aimed at encouraging local production.
With the growing concern for increasing Nigeria’s foreign exchange earnings as a way of boosting the economy, analysts have said that palm oil production is one of the low-hanging fruits that have not been given the desired priority given its potential in the country.
They stated that with the foreign exchange restriction placed on the importation of the commodity, there were no adequate measures on the ground to boost local production, forcing importers to source forex through other means to import which incidentally puts pressure on the foreign exchange reserves.
A report published recently shows that Nigeria spent almost N300 billion on the importation of palm oil between 2017 and 2022, with ‘Palm Crude Oil’ often being among the top most imported agricultural products in the country.
Why Palm Oil Importation
Data published by the National Bureau of Statistics (NBS) showed that the product was imported more in 2021 as N148.2 billion worth of palm oil found its way to Nigeria. This is followed by 2022 with N70.2 billion and 2018 with N32.2 billion.
Also, in 2020, N22.2 billion of the product was imported while in 2017, N21.2 billion. 2019 recorded the least importation with N19 billion of the product imported.
CBN governor, Godwin Emefiele, had said Nigeria imported 302,000 metric tons in 2017 despite placing the product on the forex exclusion list.
Former Chairperson of the Lagos Chamber of Commerce and Industry, Agricultural and Allied Group, Mrs Akpabio, who spoke to Prime Business Africa on telephone, said it is sad reality that “Nigeria has failed to develop her oil palm potentials left behind by the colonists. So, gradually, since independence, our capacity to meet local demand for palm oil continued to drop.”
Mrs Edobong, who is the executive director of Greenport Impact Cluster Nigeria Limited, said there is need for drastic measures to reverse the trend.
Development Economist and Research Analyst with Opportunity Research Group, Dr Aduku Ebikabowei, in a chat with Prime Business Africa, said the importation is partly triggered by the fact that the 1.4 million metric tons averagely produced in Nigeria is below the three million consumed annually.
An Enugu-based farmer, John Agbo, believes there is a lot of untapped potential in farming but governments at various levels have failed to make a genuine commitment to boosting the agricultural sector to become a major foreign exchange earner for the country.
He lamented that the government and the majority of the citizens seem to be more focused on crude oil revenue, even when a barrel of palm oil sells higher than it.
According to a report by Index Mundi, the price of a metric ton of palm oil as of March 2023 was $972.06.
Smallholder Farmers Dominate Market
Small-scale farm holders have been dominating the sector. A report by PwC which said that Nigeria is the largest consumer of palm oil in Africa indicated that Small scale farmers account for over 80 per cent of local production, while well-established companies represent less than 20 per cent of the total market.
The report also noted that the two largest producers, Okomu and Presco, contribute largely to the market share but the dominance of small farm holders in the palm oil market has resulted in low output compared to the country’s production potential.
“This is because local farmers’ manual harvesting techniques are outdated, often resulting in significant wastage during harvesting. In Nigeria, lack of investment in palm oil extraction technology and technical incompetence/ inadequate training have resulted in poor management of palm oil plantations over the years, causing some of them to cease operations,” the report said.
Speaking to Prime Business Africa on the demand-supply gap, Dr Aduku said it is due to the general problem of low production in the country which agriculture is not an exception. He said farming activities which are mostly done by small-scale farmers, is also faced with a couple of other challenges such as inefficient government policies on agriculture, lack of access to credit, insecurity, and changes in climatic condition.
“There was a time when Malaysia was even importing palm oil from us. From history, they even bought palm seedlings from us and went home and planted them. Today, we are importing palm oil from them. One of the major sources of revenue for Malaysia today is palm oil export.
“Our agricultural output is very low. This boils down to poor agricultural policies in the country. Even the fertilizers that they promise farmers either free or at subsidised costs are not properly implemented. Most farmers are not getting the benefits as politicians are high-jacking fertilizers and selling to them.
“Farmers are not encouraged. Agriculture is also dropping because we are not giving the younger ones the right orientation about agriculture as they see it as a profession for poor people,” Aduku stated.
He added that the gap will continue to widen if adequate measures are not put in place to scale up production.
Government Intervention measures
The CBN had launched a series of intervention schemes, which include the Anchor Borrowers Programme. It is a programme that offers loans to farmers at single-digit interest rates through banks and other participating financial institutions.
The PwC report stated that for the palm oil sector, the interest on the loan is nine per cent per annum. In 2019, the government also mandated CBN to support corporate bodies and individuals that are engaged in the production of 10 specified agricultural commodities. Palm oil was listed among the 10 commodities, the PwC report added.
In 2021, the government, through the CBN, launched a $500 million loan oil palm producer (this includes smallholders and big plantations) programme with low-interest rates. The aim is to increase local production by 700 per cent by 2027.
Apart from the CBN programmes, there are other initiatives by states and some private firms in oil palm production.
Some of them have focused on investing in developing new estates of early and high-yielding oil palm seedlings varieties, and also deployment of technologies for oil extraction and processing at an industrial scale.
For states, the Edo State Oil Palm Programme (ESOPP), is according to reports, likely to boost production. Fayus Nigeria Limited which is captured under ESOPP, February, reportedly began the development of a 3,000-hectare plantation in Ugbeturu Community, Owan West Local Council, with a target of creating 5,000 jobs in the community at full capacity.
The Managing Director of Okomu Oil Palm Company, Dr Graham Hefer, recently called for a review of the programme as cash crop farmers are yet to fully benefit from the CBN programme.
Hefer, urged banks participating in the intervention programme to consider granting long-term loans to farmers in the oil palm production business as it takes between five to seven years for them to break even.
“It is easy for farmers engaged in annual crops to meet their targets. This doesn’t happen with cash crops because, in the first three years of oil palm production, you are unable to break even as the tree doesn’t produce one fruit.
“You only begin to break even normally between five years and seven years in oil palm production. And that is a long time. This is what we want the bank to understand so that it starts to grant long-term loans under the programme,” Hefer said.
There are reports which indicate that despite all the challenges in the palm oil business, some producers are still making profits, at least in a private capacity. Some of them reportedly made profits in 2022. Such fortunes were linked to the current Russia-Ukraine crisis which caused disruptions in the sunflower oil market, coupled with the Indonesian export restrictions (the Asian country had 2022 banned the export of palm oil to bolster domestic supplies and rein in rising cooking oil prices).
Data released by the Nigerian Exchange Group (NGX) showed that Nigerian palm oil producers are having a good time as the two largest oil palm producers in the country – Okomu Oil Palm and Presco Plc grew their revenue by 83 per cent to N82.47 billion in the first half of 2022 from N45.09 billion in the corresponding period of 2021.
For 2022, Nigerian palm oil producers grew their revenue by 68 per cent to N142.31 billion in 2022, from N84.82 billion in 2021, thereby bringing total profit for the year N38.81 billion, a 26 per cent increase from N30.86 billion in 2021.
These gains according to analysts are not sustainable and have no significant impact on the Nigerian economy.
Commenting on the Federal government’s intervention measures, the agricultural entrepreneur, Edobong, said they have “failed” to achieve a significant result. “Oil palm is a volume crop, that is why you hear about its cultivation in hundreds and thousands of acres of land.”
She listed measures that the government should adopt to boost agricultural productivity.
She said the government should: “Establish a proper and long-term development plan for oil palm;
“Led by the Federal Ministry of Agriculture and Rural Development, identify the oil palm states and with strong synergy with the states and stakeholder MDAs, work towards the defined objectives and outcomes;
“Provide the enabling environment for creativity and innovation in the oil palm value chain and provide appropriate support systems.”
Aduku on his part called on the government to create a policy that would encourage the setting up of special entrepreneurship programmes aimed at helping students learn modern skills in various areas of farming, apart from the normal disciplines in agriculture. He added that this initiative should be followed up by creating farming centres where students can be engaged in practical experience during their mandatory one-year national youth service, as a way of encouraging youths to go into farming.
Victor Ezeja is a passionate journalist with six years of experience writing on economy, politics and energy. He holds a Masters degree in Mass Communication.
Follow Us