Reactivating Nigeria’s Oil Palm Industry

A Research by BusinessDay Research and Intelligence Unit(BRIU)

Beginning 1950s and till mid-1960s, Nigeria remained the largest producer of crude oil palm world over. It had a market share of 43.0%, supplying 645,000 MT of palm oil, on annual basis, across the globe. The civil war which began in 1967 and lasted till 1970 changed all of that. The war predominantly took place in eastern Nigeria which was the seat of oil palm plantations. The oil palm belt includes the states of Abia, Anambra, Bayelsa, Akwa-Ibom, Cross River, Delta, Eboniyi, Ekiti, Enugu, Ondo, Ogun, Osun, Oyo, Imo and Rivers.

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 that is ideal for oil palm plantation totals approximately 24 million hectares in the whole of Nigeria. However, little over 3.0 million hectares of land is put to use. The total plantation area of oil palm in and around Niger Delta ranges from 1.4 million hectares – 1.8 million hectares, the wild grove plantation is more than 1.1 million hectares, smaller plantations (categorized as plantations below 1000 hectares) approximates to 26,000 hectares and organized large estates adds up to another 100,000 hectares.

Today, from being the largest producer of oil palm, Nigeria is now a net importer of palm oil. According to IndexMundi, a data portal, the domestic palm oil produced totaled 850,000 MT in 2012. As is visible, in the chart above, the growth in oil palm has stagnated at 850,000 MT since 2009. The consumption of palm oil in Nigeria amounts to 1.0 million MT per annum. The official figures states that the shortage in oil palm industry is estimated to be around 150,000 MT annually.

However, analysts estimate that the major importers of crude palm oil (CPO); Nigeria and Benin Republic, imports 450,000MT and 470,000MT of palm oil per annum, respectively. Sources claim that most of Benin Republic’s CPO imports find their way into Nigeria as Benin exports close to 390,000 MT of palm oil annually. Thus, actual shortage of CPO could be as high as 540,000 MT if the exports from Benin Republic are taken into consideration.

Domestically, the technical palm oil (TPO) 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 (SPO) has been on the increase, which is further refined and bleached, to cater to the needs of industrial processors. There is an estimated shortage of 150,000 MT – 300,000 MT of TPO and 200,000 MT of SPO which is fulfilled through imports.

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, margarines, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Noodle industry alone consumes 72,000 MT of imported palm oil and the leading, domestic palm oil producers fail to meet this demand. Thwarted by 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 2.7%. 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.

Global Outlook

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 is expected to grow by 8% – 10% in 2013 achieving a total volume of 57 million MT – 58 million MT. Indonesia is expected to produce 30 million MT and Malaysia is expected to produce 18.9 million MT 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.

The European Union (EU) requires that by the year 2020, 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. Indonesia surpassed Malaysia as the largest exporter of CPO in 2006.

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.”