Huge supply gap offers opportunity for palm oil makers

The huge gap in the palm oil industry, estimated at over 800,000 metric tonnes (MT), provides an opportunity for local manufacturers to make more billions.

Nigeria produces between 900,000 and 1.2 million MT, out of 2.1 million MT local demand. The gap is filled by imports from Indonesia and Malaysia. Palm oil is used in foods as well as for the manufacture of the majority of packaged foods, ranging from biscuits to ice cream.

Nigeria has a population of 183 million, more than half of whom are under 40. The combined commercial oil palm plantations by Okomu, Presco and PZ Wilmar is said to be under 900,000 MT, while smallholders farmers have about 400,000 MT. This is still not enough.

In order to tap into the huge opportunity in the industry and take a greater share of imports, experts want the three large firms to have more plantations.

“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 two million hectares to plug the gap,” Henry Olatujoye, national president, National Palm Produce Association of Nigeria (NIPPAN), said.

Some experts argue that two million hectares will cost over N2 trillion to plant, while others say Nigeria only needs to achieve additional 300,000 MT, which will cost about N700 billion.

Presco made a revenue of N12.825 billion in the first half of 2017, from N7.518 billion in the corresponding period of 2016.

Its profit after tax was N5.555 billion, up 84 per cent from N3.012 billion in the corresponding period of 2016.

Okomu Oil Palm’s profit after tax rose to N6.2 billion in the first half of 2017, from N3.6 billion for the same period last year.

Okomu’s revenue jumped from ₦14.3 billion in 2016 to ₦20.2 billion in 2017.

Profit before tax also grew from ₦5.9 billion in 2016 to ₦11.1 billion in 2017. Profit after tax rose from ₦4.9 billion in 2016 to ₦9.1 billion in 2017.

PZ Wilmar is also in good stead, though PZ Cussons recently released a statement saying that tough competition for its bestselling milk segment undermined sales.

There is much more potential in the industry with more investments and a policy framework to stop smuggling.

Local manufacturers have made significant investments in the sector so far.

“Our investments in oil palm plantations and associated infrastructures in Cross River State currently stand at around N45 billion (approximately $150 million). We are continuing with these investments and looking for opportunities to expand our plantations in the state. We have also invested around N20 billion in an oil palm refinery in Lagos,” Santosh Pillai, managing director of PZ Wilmar, told BusinessDay.

Okomu Oil Palm Company Plc is investing $50 million to raise crude palm oil (CPO) production to 80,000 metric tons (MT)) per annum in the next five years from the current 40,000 MT.

Okomu is setting up a palm oil mill that will cost N15 billion, according to Graham Hefer, managing director of the company.

Presco has invested about N75 billion and has total land bank of 40,000 hectares of which total planted areas are 20,136 hectares of oil palm plantation, Felix Nwabuko, managing director of Presco, said.

Stakeholders say they need an intervention fund or massive financial injection into the industry as it was done in the rice industry, urging the Central Bank of Nigeria and the government to extend a hand of fellowship to palm oil.

ODINAKA ANUDU