Can Nigeria Fill the Gap in Global Palm Oil Supply?
As the global market comes to terms with the recent ban on palm oil exports by Indonesia, the world’s highest exporter, and attention being shifted to Nigeria to fill the gap created by her decision, the question is: will Nigeria rise to the occasion or allow the opportunity to slip away? Festus Akanbi asks
Whenever the story of Nigeria’s post-independence period is relayed, it usually evokes a deep sense of nostalgia especially when the narratives are laced with copious examples of ambitious policies of the administration that took over from the colonial government.
It is such a story of nationhood where men, resources, and policies were picked, set aside, and settled for, respectively, purely based on merits and necessity.
Incidentally, part of that story is the narrative about the growth of the oil palm industry, where Nigeria competed favourably with countries like Malaysia and Indonesia, in the export of palm oil, the most produced, consumed, and traded edible oil in the world.
In the late 1950s and early 1960s, Nigeria was the world’s largest palm oil producer with a global market share of 43 per cent.
The country soon abandoned palm oil production when it discovered crude oil in commercial quantity. Today, it produces just 1.4 million metric tonnes of palm oil, a dismal fraction of Indonesia’s 44.5 million metric tonnes as of 2021.
While, Malaysia’s palm oil production from 2015 to 2020 respectively included 17,700,000 metric tonnes (MTs); 18,858,000MTs; 19,683,000MTs; 20,800,000MTs; 19,255,000MTs and 17,854,000MTs, Nigeria’s production from same period, according to Oil World, are 940,000MTs; 960,000MTs; 1,040,000MTs; 1,130,000MTs; 1,220,000MTs and 1,280,000MTs respectively.
Meanwhile, Nigeria’s oil palm consumption from 2015 to 2020 were 2,517,000 metric tonnes; 2,480,000MTs; 2,490,000MTs; 2,523,000MTs; 2,573,000MTs and 2,591,000MTs.
Nigeria is now a net importer of palm oil; it consumed two million metric tonnes in 2021, leaving a deficit of 0.6 metric tonnes, according to the United States Department of Agriculture(USDA). Between 2012 and 2021, Nigeria imported over 4.1 million metric tonnes of palm oil, the USDA data showed.
While records showed that from 1975 to 2009, Nigeria was the second-largest recipient of World Bank funding for palm oil investments with six projects, only one project survived. Efforts by successive governments to revitalise the sector have been unsuccessful.
As Indonesia Bans Oil Palm Exports
However, as attention shifted to the oil palm exports a fortnight ago with the surprise ban on oil exports by Indonesia, analysts said the development has presented another opportunity for Nigeria to come back to reckoning.
The unexpected announcement threatens to worsen global food inflation already aggravated by Russia’s invasion of Ukraine. Both countries produce most of the world’s sunflower oil.
They argued that Indonesia’s surprise ban on palm oil exports offers Nigeria a lucrative opportunity to plug the gap as international buyers scramble for alternatives. They noted, rather sadly that with the current level of production, it will be difficult for Nigeria to seize the moment in a market it once dominated.
It’s not as if the successive administrations have not injected money into oil palm production. For instance, in 2019, the government launched a $500 million plan to increase funding to producers of oil palm through low-interest loans, to raise domestic output by 700 per cent by 2027.
The result has been relatively better but weak. Palm oil production rose from 955,000 metric tonnes in 2015 to 990,000 metric tonnes in 2016, and one million metric tonnes in 2017. In 2018 and 2019, Nigeria’s palm oil production averaged 1.1 million metric tonnes, and then it climbed to 1.2 million metric tonnes and 1.4 million metric tonnes in 2020 and 2021 respectively.
According to the Central Bank of Nigeria (CBN), if Nigeria had maintained its market dominance in the palm oil industry, the country would have been earning approximately $20 billion annually from the cultivation and processing of palm oil today. That’s about half the 2022 federal budget.
Indonesia and Malaysia surpassed Nigeria as the world’s largest palm oil producers in 1966, and since then, both countries combined have yearly delivered approximately 80 per cent of the total global output of palm oil, with Indonesia alone responsible for more than half.
The Governor of CBN, Mr Godwin Emefiele was quoted as saying that over $500,000,000 was being spent annually on the importation of palm oil.
Emefiele, who lamented the sad development, recalled that in the late 50s and 60s, Nigeria was not only the world’s leading producer of palm oil, but it was also the largest exporter of palm oil, accounting for close to 40 per cent of the global market share.
“Despite placing oil palm in the forex exclusion list, official figures indicate that importation of palm oil had declined by about 40 per cent from the peak of 506,000 metric tonnes in 2014 to 302,000 metric tonnes in 2017.
“This indicates that Nigeria still expends close to $500 million on oil palm importation annually and we are determined to change this narrative.
“We intend to support improved production of palm oil to meet not only the domestic needs of the market but to also increase our exports to improve our forex earnings,” he was quoted as saying.
He said with the help of the state governments, Nigeria could reach self-sufficiency in palm oil between 2022 and 2024 and ultimately overtake Thailand and Columbia to become the third-largest producer over the next few years.
“As part of our Anchor Borrowers Programme (ABP) and Commercial Agriculture Credit Scheme (CACS), the CBN will work with large corporate stakeholders and smallholder farmers to ensure the availability of quality seeds for this year’s planting season,” Emefiele reportedly said.
Managing Director, Foremost Development Services Limited and Advisor to Plantation Owners Forum of Nigeria (POFON), Mr Fatai Afolabi, while speaking at a forum organised by Malaysia External Trade Development Corporation (MATRADE) in Lagos recently disclosed that “40 per cent of all palm oil plantations in Malaysia are owned or farmed by small-scale farmers, whereas, it is over 70 per cent small-scale owned in Nigeria.
“As palm oil has been a major factor in Malaysia, reducing poverty from 50 per cent in the 1960s, down to less than five per cent now, Nigeria can also achieve poverty alleviation through the industry,” he said.
Afolabi affirmed that the Nigerian Institute for Oil Palm Research (NIFOR) developed the Tenera hybrid, which is a globally accepted oil palm type, but despite that, Nigeria remained for too long on the wild variety, utilising poorly coordinated processing mechanisms and dominated (about 80 per cent of the country’s oil palm production is done) by smallholders at both planting and processing levels, resulting in low output in terms of Fresh Fruit Bunch (FFB) per hectare and palm oil extraction.
He said unlike Malaysia, Nigeria has just a little over 600,000 hectares under improved oil palm planting, with a less-established oil palm industry.
Chairman, Plantation Owners Forum of Nigeria, and Chief Executive, Aden Estates Limited, Mr Emmanuel Ibru, lamented that Nigeria has moved from number one in the 50s and 60s to a distant fifth. You now have countries like Columbia and Thailand coming ahead of us, not to mention the mega ones like Indonesia and Malaysia.
He believes Nigeria has the labour, insisting however that there is a need for government to encourage the younger generation in the rural areas, especially the low-skilled population, to work on the farm, especially with the advent of social media and the glorification of the ostentatious lifestyle of internet fraudsters.
“We can scale up, but it requires more effort, hard work, and adequate capital. To develop one hectare of oil palm, you need between $4,000 and $5,000. Also, such investment requires patient capital because the gestation period is four years. Full commercial production commences in years five to six. This is when a proper revenue stream comes on.”
Ibru also raised the issue of access to finance, and the need to ensure there is the availability of land. “We have the land, but the challenge is how to take peaceful possession of the land. Even potential investors with requisite financial capital find it difficult to acquire land, though some states like Edo, through the Governor Obaseki-led oil palm initiative, are trying to ease the process.”
He believes there is a need to rejig the strategy to allocate or facilitate funding to small and medium-scale farmers considering the gestation period of oil palm trees.
“CBN has its real sector support fund and that fund, if you read it on paper, is exactly what we require. It provides for funding for up to 10 years with a three-year moratorium on principal repayment, and nine per cent interest yearly, but the problem is that the real sector support fund does not belong to CBN. The CBN real sector support funds are from the commercial banks’ cash deposit ratio with CBN,” he said.