Why global palm oil windfall eludes Nigeria

BY ONOME AMUGE

Palm oil, with a production volume of 77.05 million tonnes and export volume of 49.62 million tonnes in 2021-22, is considered the world’s most traded edible vegetable oil, according to data gleaned from the United States Department of Agriculture (USDA). It is followed by soybean oil with a production volume of 58.97 million tonnes and export volume of 12.44 million tonnes; sunflower seed oil, with 20.39 million tonnes produced and 10.74 million tonnes exported; and rapeseed oil with an estimated 28.49 million tonnes produced and 5.53 million tonnes exported.

The USDA in its 2020/2021 oil palm production and export report, ranked Indonesia as the highest producer of the dominant edible oil, accounting for 60 percent of global vegetable oil supply as it exported an estimated 30 million tonnes of palm oil in the period, more than a third of all edible oil exports. Malaysia was ranked second largest producer with an estimated 16.2 million metric tonnes in palm oil exports. Thailand, Columbia and Nigeria were ranked third, fourth, and fifth, highest producers, respectively.

However, Indonesia’s recent ban on palm oil exports has consequently created a setback across the global market, with prices of the most widely consumed edible oil in the world soaring to multi-year highs amid the supply crunch. More so, the geopolitical risks caused by the ongoing Russia-Ukraine conflict, and drought in the South American region, which has affected supply of soybean oil, rapeseed oil and sunflower seed oil, have dented hopes of a sustainable alternative for oil palm importers, posing far reaching consequences in a market that has suffered massive volatility, exacerbated by the war in Ukraine.

The ban on oil export, according to Joko Widodo, the Indonesian president, is in response to surging cooking oil prices in the Southeast Asian country. Widodo explained that the ban, which came into effect from April 28 until further notice, was hinged on the country’s policy to ensure abundant supply of the commodity in the domestic market, and to combat soaring palm oil prices by making it affordable for local consumers.

Implication of supply crunch on Nigerian market

Data provided by the USDA showed that Nigeria consumes an estimated two million metric tonnes against a production volume of 1.4 million metric tonnes. It also showed that the highest palm oil consuming country in Africa imported about 4.1 million tonnes of palm oil between 2012 and 2021, over one-third of the country’s production within the period.

According to industry analysts, the current turmoil in the palm oil market, rather than serve as an avenue for Nigeria to cash in on rising palm oil prices in the global market, has on the contrary, exposed the country’s worrisome status as a net importer of the commodity.

They also averred that despite being a major component for the production of over 40 essential items, including cooking oil, tooth pastes, soaps, margarine, detergent, shampoo, among others, palm oil production has remained heavily underexploited in Nigeria with outdated processing methods majorly practised in the country, resulting in high production deficits and supply gaps, with the country requiring about $500 million worth of palm oil to meet its annual local demand.

As a result of the supply tightness, prices of the commodity across Nigerian markets have spiked, with a 5-litre gallon of palm oil currently selling at between N5,100-N6,100, compared to an average of N3,500-N4,100 recorded prior to Indonesia’s export ban, translating to over 50 percent price surge with indications that prices could further increase due to high demand.

Challenges hindering oil palm production

In his assessment of Nigeria’s palm oil industry, Joe Onyiuke, the national president of Oil Palm Growers Association of Nigeria (OPGAN), lamented that Nigeria’s oil palm production level is comparatively low, that the fifth largest producer in the world currently produces just 1.4 million metric tonnes of palm oil, which is an insignificant fraction compared to Indonesia’s 44.5 million tonnes production as of 2021.

This, he noted, is in contrast to Nigeria’s significant role in the early 1900s until the 1960s when the country was ranked the world’s largest palm oil producer, accounting for 43 percent of global production.

Onyiuke also observed that the Russia-Ukraine conflict has further constrained major palm oil producing countries of Malaysia and Indonesia to limit their export capacities, while Nigeria is unable to attend to increasing export requests since production levels are yet to meet local demand.

“Nigeria’s contribution to the world oil palm industry stands at less than two percent as over 70 percent of oil palm production in the country is produced by smallholder farmers unable to make significant output due to lack of access to credit facilities and improved technologies,” he said.

The OPGAN president further stated that poor funding and proliferation of unorganised smallholder farms and low participation of youths, remain major constraints to increasing production levels.

Despite having 80 percent of market share, an estimated four million smallholder farmers in Nigeria’s oil palm sector are unable to maximise the opportunity available to them due to relatively low yields and limited access to adequate processing equipment. Such is the case of Akpevwheoghene Osika, a small-scale palm oil producer based in Isoko South Local Government Area of Delta State. Osika explained that oil production with the use of crude implements such as mortar and pestle which is a normalcy in her locality, is very tedious and produces little yield.

On her inability to purchase processing machines to ease production, she remarked that the machines are sold at exorbitant prices, adding that maintaining them is cost intensive for someone operating at a small scale level.

The Oil Palm Growers Association of Nigeria (OPGAN) also stated that poor funding of the National Institute for Oil Palm Research (NIFOR) has hindered the institute from making relevant research that would contribute significantly to the country’s production.

OPGAN identified the absence of inclusive budgeting and delay in the release of funds, stating that it affects project delivery and impact with long term negative implications for the oil palm industry.

Other challenges highlighted by the association include; lack of improved planting materials, shortage of storage facilities, processing facilities and fertilisers.

It was also observed that the contractual arrangement between big oil palm companies and smallholder farmers has, to an extent, been exploitative and hadn’t yielded adequate and sustainable benefits for smallholder farmers who make up a larger percentage in the oil palm sector.

On its part, the National Palm Produce Association of Nigeria (NPPAN) noted that importation, illegal smuggling of palm oil and the influx of banned adulterated crude palm oil (CPO) into the Nigerian market discourages local production.

Iyare Harrison, general secretary, NNPAN, Edo State chapter, said that land ownership is a major constraint as oil palm cultivation occupies large hectares of land and it is getting difficult to get these lands as residential areas and industries are gradually encroaching on available spaces leaving little space for oil palm production.

He added that the majority of these parcels of land are communally owned, which makes it difficult to acquire them on lease for a more extended period of time during which the plants would have matured and started yielding. Poor road access to the farms, he explained, is another problem hindering the oil palm sector.

Harrison noted further that operators at the processing phase suffer infrastructural challenges such as poor road networks, dilapidated nature of some of the oil processing mills, which makes milling unsustainable in many cases owing to frequent breakdowns; as well as the epileptic power supply from the national grid which affects some of the oil-processing machines (millers) that depend on electricity.

Govt. interventions; way to sustainable production

In a bid to encourage local production and curb importation, the Muhammadu Buhari-led administration placed a ban on the allocation of foreign exchange to palm oil importers, while also stamping a 35 percent tax on importers of crude palm oil.

This was followed by the launch of a $500 million plan in 2019 aimed at increasing funding to oil palm producers through low interest loans and raising domestic production 700 percent higher by 2027.

The initiative, according to analysts, has resulted in improved production albeit at a slow growth. They argued that though production increased from an average of 1.1 million tonnes in 2019 to 1.4 million tonnes in 2021, the country’s production capacity remained meagre compared to volumes recorded by Indonesia and Malaysia, the global leaders in oil palm production.

Samson Remison, professor of agriculture, Department of Crop Science, Ambrose Alli University, (AAU), Edo State, who noting that quite a number of smallholder farmers in the oil palm sector are unable to access the Central Bank of Nigeria (CBN) agricultural finance interventions, lamented that the programmes were sometimes, discriminatory and focused on the big plantation owners with impressive cash flow and better ability to pay back loans.

According to him, the Anchor Borrowers’ Programme of the federal government was launched to provide seeds and cash to farmers to grow crops but the participating banks working with CBN lend to ‘anchors’ at nine percent per annum for onward disbursement to farmers, making it difficult for smallholder farmers to access the interventions.

“CBN must understand the peculiarities in oil palm production, as it takes three to five years for it to mature. So CBN cannot afford to ask for loan repayment in three months as applicable to arable crops,” he said.

Remison stressed that there was a need to create a special financing scheme for the oil palm sector to enable smallholder farmers to have access to funds and improved technologies. He added that conscious efforts should be made to increase the production level of these smallholders, as well as provide a conducive environment for investment by large scale investors.

Alphonsus Inyang, national president, NNPAN, observed that successive governments had in the past, implemented various policies, programmes and funding to promote oil palm production. He, however, bemoaned that many of the administrations failed to fully implement the programmes while in power, leaving the country in a continuous struggle to gratify local demand.

On how the country can better exploit its oil palm production potentials, Inyang recommended that the government invest in the development of at least 500 thousand hectares of oil palm plantations annually, noting that the oil palm industry is one of the most lucrative agricultural commodities with the ability to add $15 billion revenue to the country’s GDP every year.

The NNPAN president also tasked the CBN to set aside a special fund of at least N200 billion, specifically for the development of the oil palm sector.

In an assessment of the global demand for palm oil, Reportlinker, a renowned AI-powered market intelligence platform, projected that the global market for palm oil, which currently stands at $74.9 billion, would reach $92.3 billion by 2026, underpinned by a continuous growth in demand worldwide.

For Nigeria to bridge its local demand deficit and hold a significant value in the competitive multi-billion dollars palm oil market, the Oil Palm Growers Association of Nigeria said local palm oil producers need to re-strategise their efforts at both production and organisation to be able to attract the necessary funding for improved and increased production.

The over 200,000 members of the association were encouraged to promote formation of cooperatives and clusters for easy access to loans, particularly from the CBN. Palm oil producers were also advised to increase their collaboration with NIFOR to boost quality production.