Red palm oil industry in Nigeria, investment opportunities and limitations: factors to consider.

From 1950s  till 1965, Nigeria remained the largest producer of crude palm oil  in the world. It had a market share of 43.0%, supplying 645,000 Metric tonnes of palm oil, annually, across the globe. The civil war which began in 1967 and lasted till 1970 negatively changed all of that. The war predominantly took place in eastern Nigeria which was the seat of oil palm plantations.

The war destroyed almost all of the oil palm plantations and dispersed the small land holders of oil palm, who till date, accounts for 80.0% of the oil palm produced locally. The war though ended but left behind a legacy of crippled oil palm industry.

The total land available for oil palm plantation totals approximately 25 million hectares in the whole of Nigeria. However, little over 4.0 million hectares of land is put to use. The total plantation area of oil palm in and around Niger Delta ranges from 2.2 million hectares – 2.4 million hectares, the wild grove plantation is more than 2 million hectares, smaller plantations (categorized as plantations below 2000 hectares) approximates to 26,000 hectares and organized large estates adds up to another 200,000 hectares.

Today, from being the largest producer of oil palm, Nigeria is now a net importer of palm oil. ranking about 26th in the world. According to Index Mandi, a data portal, the domestic palm oil produced totaled 950,000 Metric tonne in 2013.the growth in oil palm has stagnated at 850,000 MT since 2009. The consumption of palm oil in Nigeria amounts to 1.3 million Metric tonne per annul. The official figures states that the shortage in oil palm industry is estimated to be around 150,000 Metric tonne annually.

However, analysts estimate that the major importers of crude palm oil (CPO); Nigeria and Benin Republic, imports 480,000Metric tonne and 500,000Metric of palm oil per annul, respectively. Sources claim that most of Benin Republic’s CPO imports find their way into Nigeria as Benin exports close to 390,000 Metric Tonne of palm oil annually. Thus, actual shortage of CPO could be as high as 540,000 Metric Tonne if the exports from Benin Republic are taken into consideration.

Domestically, the technical palm oil  produced in-house is preferred because of its “tangy” flavor, a feature which is missing in imported palm oil. On the other hand, the demand for special palm oil  has been on the increase, which is further refined and bleached, to cater to the needs of industrial processors. 90.0% of palm oil is consumed by food industry and the remaining 10.0% is used by the non-food industry. Foods like noodles, vegetable oil, biscuits, chips, margarine, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Noodle industry alone consumes 72,000 Metric Tonne of imported palm oil in Nigeria and the leading, domestic palm oil producers fail to meet this demand. Unavailability of sufficient oil palm in the Nigerian market, some noodle-makers have proactively announced strategic alliances to invest in oil palm plantations.

Nigeria today produces only 1.7% of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.9%. Thus, the question of net exports doesn’t arise; however, paradoxically, about 20.0% of the oil palm produced domestically is considered of high quality and clears all the seventeen tests for being an exportable commodity.

On a global basis, the value of the oil palm industry amounts to $40 billion – $50 billion. Presently, global demand for oil palm consolidates to 49.5 million tons. The production of CPO  grows to  8% – 10% in 2013 achieving a total volume of 57 million Metric Tonne – 60 million Metric Tonne. Indonesia is expected to produce 30.2 million Metric Tonne and Malaysia is expected to produce 18.9 million Metric Tonne between 2013 and 2015. The industry is expected to reach 62.5 million tons by 2015 attributed to the increasing demand from food, chemical and bio-diesel industries.

By the year 2020,the European Union predict that 20% and 10% of energy and transport fuel, respectively, should be derived from renewable sources of energy. This regulation is also expected to act in favor of the oil palm industry as oil palm serves as fuel for biomass plants. 50% of packaged foods and cosmetics use some form of palm oil as inputs. In addition, the rising income-levels in Asian nations also add to the demand of packaged food which has higher content of palm oil.

According to United States Department of Agriculture (USDA), palm oil accounts for 40.0% of the edible oil world over which is much higher than the next in line, soy, which accounts for 22.0% of the world market. 63.0% of the global export of vegetable oil is accounted for by palm oil. Its dominance in global market is expected to continue because of the advantages it offers compared to the sources of other edible oils. Oil palm yields highest vegetable oil per hectare when compared to other sources of vegetable oils. In addition, it becomes indispensable because it produces two different types of chemical oils which add to the multiple uses it could be put to.

More than 42 countries across the world are engaged in production of oil palm, with South-East Asia including Indonesia, Malaysia and Thailand, contributing as high as 90.0% of the world’s production, dominates the industry.

Malaysia, the second largest producer and exporter of CPO, exported oil palm worth $16 billion in 2010. Further, the major oil palm producing nations are still expanding the land under cultivation more than assuring the authority of the industry in times to come.

Ivory Coast, the only exporter of palm oil in Africa, is inclined to double its oil palm production to 600,000 tons by 2020. It is the second largest producer of palm oil in Africa, producing between 300,000 tons and 350,000 tons.

For generations now, economies across the globe have taken to oil palm plantations as a method to eradicate poverty with the economies of Malaysia and Indonesia standing testimony to it. Due to the immense commercial value of palm plantations, many African nations are also adopting the formula of the South-East Asian nations to eradicate poverty; the one prominent example could be Uganda.

In the Malaysian-African Palm Oil Trade Fair 2011, Choo Yuen May, the Director General of Malaysian Palm Oil Board, stated that “There is no doubt that Africa is the land of oil palm. Malaysia owes its success in this sector to this region where the seeds or planting materials of oil palm came from.”

Repositioning  Palm oil Industry in Nigeria

The Honorable Minister of State for Industry Trade and Investment, Dr. Samuel Ortom has said  that Nigeria ranks 26th in the world  production of palm oil and hardly satisfies her domestic demand.

            He made the statement during the stakeholders meeting towards the successful hosting of the 1st International Palm Produce Conference held in Abuja.

            In his address read by the Permanent Secretary, Mr. Dauda Kigbu, Dr. Ortom said that the  inability of meeting local demand in palm oil production was a clear indication that the fortunes of the Palm Oil Sub-Sector have declined significantly.

            In his word “It is in this regard, that the National Palm Produce Association of Nigeria (NPPAN) in collaboration with Ministry of Industry Trade and Investment proposed to organize a conference to serve as a Platform for Interaction with Stakeholders in the oil Palm Industry globally to review and widen contacts as well as foster developmental strategies to address the entire Oil Palm value- chain with stakeholders in order to resuscitates the lost glory of the oil palm industry in Nigeria.

   Ortom said, the conference was coming at a time the Ministry was setting building blocks in the transformation of the oil palm industry as a catalyst for economic development and prosperity.

            “It is also timely, as the forum intends to send strong signals to investors/Stakeholders of existing opportunities in the palm  oil industry in Africa with participation of more than 40 countries worldwide:.

            He reassured the Stakeholders that the ministry will continue to put in place policies that are needed to facilitate a rapid development of the commodities sector along the value Chain in order to restore the lost glory of palm oil industry in Nigeria.

            The stakeholders, Government Agencies, Corporate bodies and others  are urged to contribute generally towards developing  investment opportunities and a road map for tackling the challenges facing the development of the oil palm industry in Nigeria.

In his Remarks, the Director, Commodities and Produce Inspectorate, Mr. Joseph Apanishile charged stakeholders to be committed to the hosting of the international conference which will serve as an avenue to attract investments from the large turn out of investors.

He recalled that Nigeria was before 1965 the world’s largest producer of palm produce but has ceased to contribute to the world’s export of the commodity since 1974 except palm kernel shell.

Earlier, the President, National Palm Produce Association of Nigeria, Henry Olatujoye had pointed out that the Ministry has built a robust support to the association for the development value chain in the sector.