Nigeria’s palm oil industry: Moonlight on spring river
by ODINAKA ANUDU
March 12, 2018 | 2:25 pm| | | Start Conversation
It was a hectic day for Elizabeth Osagie on Tuesday, February 13, 2018. She was a smallholder oil palm farmer in Okekpe, Edo State, and was lucky that some of her oil palm seeds had fruited.
Okekpe had spent the previous day boiling the palm fruits and her plan was to pound them today.
This was Tuesday and she needed to produce at least 50 litres for a city merchant. The businessman would buy from her and sell to a food processing company in Lagos.
The price of 25 litres of palm oil was N11, 000 and she was desperate to produce double of it to make N22, 000. Osagie was not alone; her 18-year-old daughter Agbarah was also much busy. Both were using traditional wooden pounders, which were equally effective on boiled cassava and yam.
But this was 5.49 pm and she and her daughter had produced barely five litres. She had no money for a milling machine so would use her energy to get results.
However, this was frustrating. The city merchant had paid part of the money and was coming the following day. But there was no guarantee that the 25 litres would be ready the following day.
A standard milling machine costs N150,000 to N250,000, but Osagie could not afford it. The middle-aged woman could not access loans because a bank worker who visited her community in 2016 told her that she had no bankable business plan.
“If I have an oil milling machine, I know production will be faster,” she said, in a somewhat low tone.
Osagie was not in a mood to grant interviews as she had a target to meet.
Her frustration mirrors the state of Nigeria’s oil palm industry today.
Smallholder farmers like Osagie are responsible for 80 percent of output in the industry. They own over 400,000 hectares of oil palm plantations across the country but produce two to three tons per hectare. Contrast this with Malaysia where smallholder farmers produce 18 to 20 tons per hectare and you will see why Nigeria produces only 1.7 percent of global output.
BusinessDay’s on-site visits to oil palm plantations across the country show that some of the smallholder oil palm farmers in the country neither know when to apply fertilizers nor do they know crop spacing (usually seven to nine metres).
The confessions of many smallholders show that there is more to do to educate them on international best practices in oil palm industry.
Most of them depend on family labour and lack knowledge of healthy agronomic practices.
It takes money to invest in oil palm plantations, which many smallholder farmers do not have. Apart from money, oil palm requires four to seven years to fruit and eight to 13 years to yield profits. This accounts for why the industry is still less attractive to impatient youths and populated by middle-aged and old women, experts told me.
Tale of woes
I left Edo State for Cross River. My destination was Calaro Oil Palm Estate in Akampa Local Government Area. As I moved from the entrance of Calaro Oil Palm Estate to the PZ staff quarters that Tuesday night, February 20, I thought deeply about Nigeria’s palm oil industry.
It is a story of pratfall, similar to falling from grace to grass. By early 1960s, Nigeria had been producing 45 percent of global palm oil output, but today, the country only scratches 1.7 percent.
According to Peter Kilby, a United Kingdom-based researcher, who is now 82, Nigeria earned £40 million in foreign exchange from export of palm oil and palm kernels in 1965.
But today, the country is fifth on the ladder, producing between 930,000 metric tons (MT) of palm oil and 1.3 million (MT) annually, behind Indonesia’s 36 million MT output; Malaysia with 21 million MT; Thailand with 2.2 million MT, and Colombia with 1.3 million MT.
Recent data make matters worse. The National Bureau of Statistics (NBS) said in the second quarter of 2017 that Nigeria imported N7 billion worth of Crude Palm Oil (CPO) within the three-month period, with Indonesia accounting for 76 percent of the total import. For the avoidance of doubt, CPO is the red palm oil which is sold in the open market and used in daily meal.
Solidaridad Networt, an international organisation facilitating the development of socially responsible, ecologically sound and profitable supply, released its data last year showing that Nigeria imported 552,000 metric tons of CPO in 2016.
This has always been Nigeria’s story since crude oil boom of 1970s. With crude oil market at its peak in 1970s, successive military governments abandoned palm oil mills and withdrew support for the industry.
Kilby’s research shows that the country had 67 oil palm mills in 1964 across the country, with fruit capacity estimated of 201, 000 tons.
Cross River’s Dead Oil Palm Estates
Due to what is popularly called Dutch disease that caught up with Nigeria from 1970s down to 2000s, several oil palm plantations across the country and mills went out of business. Cross River had a large share of the closures.
Kwa Falls near Calabar was initiated in 1948 for the purpose of resettling some 200 farming families from the overcrowded areas of the Eastern Region. By 1964, five plantations with some 19,000 planted acres had been established there. Kwa Falls’ 2,014-hectare plantations were later acquired by Obasanjo Farms. Other abandoned oil palm plantations in the state included Ibiae, Calaro and its extension, Ibad, and Oban.
PZ Wilmar on rescue mission
Around 2010, PZ Cussons Nigeria entered into a joint venture (JV) agreement with Wilmar of Malaysia with a view to reawakening dead oil palm estates across Nigeria, particularly in Cross River State.
The JV became a reality in 2012 when PZ Wilmar acquired the defunct Calaro Oil Palm Estate, formerly owned by Cross River government. The estate, also known as Biase plantation, located in Akampa/Odukpani area of the state, has 5,549 hectares (ha). The firm also acquired a proximate area known today as Calaro Extension with 2,369 ha. It also acquired Ibiae plantations with 5,595 ha; Ibad plantations in Akampa with 7,805 ha; Kwa Falls in Akampa Akpabuyo with 2,014 ha, and Oban plantations, also in Akampa, with 2,986 ha.
PZ Wilmar plantations in Cross River are altogether estimated at 26,318 ha. Target is to hit 50,000 ha in a few years.
Malaysians have always denied that they took oil palm from Nigeria. A Malaysian told me that his countrymen actually took oil palm from Calaro Estate.
This may be validated by various researches which show that oil palm is native to West Africa, as confirmed to me by Asen Ako, sustainability manager at PZ Wilmar.
There are two processing plants under construction at Calaro Estate. One is the palm oil mill (POM), which converts fresh fruit bunches (FFB) into palm oil. This process involves extracting red palm oil from the fleshy outer mesocarp of the palm fruit. The product from this process is known as crude palm oil (CPO), similar to the red palm oil that is sold on the local market.
In oil palm industry, FFP is the first stage of processing, followed by CPO and vegetable oil, according to experts.
The other plant at the estate is the kernel crushing plant, which extracts palm kernel oil (PKO) from the palm kernels.
The mill is expected to be completed by the end of April, 2018. Full operations will start in early May.
The POM has a capacity to produce 45 tons per hectare, while the KCP is estimated to produce 2.5 ton per hectare.
I found that PZ Wilmar’s Ibad oil palm estate produces 20 tons per hour of FFB. There is also water reservoir, which is a storage pond. Most of the people who work at the plantations are natives of Cross River and PZ Wilmar is using the smart manufacturing method to achieve efficiency.
PZ Wilmar’s investments in oil palm plantations and associated infrastructures in the Cross River State are estimated at N45 billion, company officials told me.
About N20 billion has also been pumped into an oil palm refinery in Lagos.
PZ Wilmar has a project with smallholder farmers in association with Heritage Bank.
Solange Wakwi, who is in charge of Outgrowers Scheme for the firm, told me that N1.547 million is provided to each farmer to develop a hectare within four years.
Due to low productivity of smallholders, PZ is planning, through its pilot project, to enable them produce 18 tons of FFB per hectare, rather than just two or three.
“With the right planting stock and good agronomic practices, they can increase this several folds,” Santosh Pillai, managing director, PZ Wilmar, told me in an interview.
According to Pillai, the company is investing in oil plantations in Nigeria because there is a massive gap between demand and supply.
“Plantation establishment and palm oil production are our core business and we have vast experience doing this business in Malaysia, Indonesia, Ivory Coast, Ghana, Uganda and other countries. Nigeria has the biggest market in Africa and is the largest consumer of the palm oil in the region.
“We are continuing with these investments and looking for opportunities to expand our plantations in the state,” he added.
Presco Plc is another major player that is plugging the huge gap in the industry.
Located in Edo State, the firm has total land bank of 40,000 hectares of which planted areas are 20,136 hectares of oil palm and 138 hectares for rubber.
Presco’s investment is valued at N75 billion. Its capacity is 63 percent in the peak season and 24 percent in the lean season.
The firm’s estimated production for 2018 is 47,000 MT of CPO.
“Included in our long term business plan is capital expenditure (capex) investment of N46 billion over the five year period of 2018-2022 in plantations development, processing facilities, energy infrastructure and other supporting machinery, equipment and infrastructure,” Felix Nwabuko, managing director of Presco, told me.
Okomu is also a deep-pocket investor producing 40,000 tons of CPO.
It plans to move to over 80,000 tons with its current investment. With operational headquarters in Edo State, Okomu is a member of Socfinal group of Luxembourg which owns 62.6 percent of the Company’s shares with Nigerians owning the balance of 37.47 percent. It recently acquired 11,400 hectares of land and plans to establish 10,000 hectares of oil palm plantation within three years. Okomu is setting up a palm oil mill that will cost N15 billion, according to Graham Hefer, managing director of the company.
Old Plantations race back to life
One of my startling discoveries is that the once abandoned Adapalm, located at Ohaji, Egbema, in Imo State, is now in full gear.
As of the first half of 2017, this mill was abandoned and overrun with weed and snakes due to poor management by Roche Group, which took over the plant from Imo State government.
But between July and November of 2017, Imo State government entered into a joint venture(JV) with VTU, a Vietnam investor, which has so far pumped N300 million into the mills. The JV also involves the Ohaji community, which has a stake in the business.
The mill is fed from the 4,300 hectares of oil palm plantations in Ohaji and it currently produces 30 tonnes of palm oil per hour, BusinessDay found.
Apart from jobs provided by the mill, smallholder farmers bring quantities of oil palm to the company for sale.
“Many Chinese companies in Nigeria and abroad have already contacted us. The demand is high and it is very difficult to meet it,” Jude Oparah, operations manager, Imo-VTU Oil Palm, told BusinessDay.
“There is a room for expansion here and we intend to go downstream. We want to start crushing kernel to get Palm Kernel Oil (PKO) and process oil to get margarine, detergents and other things,” Oparah said.
Another cheery story is that Okitipupa Oil Palm Plc is now ready for business after five years of closure. Governor Rotimi Akeredolu has handed the company over to the owner, Mobolaji Osomo, Nigeria’s former minister of housing and urban planning.
The firm has two mills—one at Okitipupa and the other at Ikpokemuyi in Ondo State. The former has 20 tons per hour capacity while the latter’s capacity is estimated at 22 tons per hour, senior officials of the firm told BusinessDay.
The mill is currently old and needs total overhauling. The board of the company sat two weeks ago and is expecting an investor to take over the mills and resuscitate them.
Already, a multinational oil company Victory Crystal Investment is interested and wants to pump $13m to resuscitate the mills, BusinessDay was told.
Okitipupa has plantations at Ikoya, Ilitutun, Igbotako, and Omotosho, all in Ondo State, and the plantations have been active even while the mills were abandoned.
Firms in the food and beverage sub-sector buy oil palm from the plantations, a senior official said.
“It needs total overhauling because the mill is old. It was established in 1984 and there are certain technologies that need to be brought in,” the official said.
More so, BusinessDay gathered that Araromi-Ayesan Oil Palm, which was a shadow of itself early last year, is now on. It has 10, 468 hectares of plantations and already has a board chaired by Femi Okunniyi.
Despite ups and downs, silent revolution is taking place in the industry with production rising.
Around 2013, Nigeria’s output stagnated at 900,000 to 950,000 MT, but in the last five years, output has raced to 1.2 million to 1.3 million MT, experts told me.
With national demand standing at 2.1 million MT, it is only a matter of time, investment and consistent policy for players to plug 800,000MT gap in the industry, experts say.
Henry Olatujoye, national president, National Palm Produce Association of Nigeria (NIPPAN), told me there has been increase in palm oil production in Nasarawa, Adamawa, Cross River, Ondo, Edo and many states, and many large firms are organising farmers into clusters and providing them with high-yield seeds.
Are these plantations enough?
Experts say that the big players in the industry have around 900,000 hectares, which are insufficient for a country whose population grows at 2.6 percent per annum. Nigeria has a population of 183 million, more than half of who are under 40.
Statistics show that 40 percent of products at super and hyper markets in the country are made up of palm oil.
Experts believe that there is an opportunity in the industry which multinationals like Sime Darby have seen from faraway Malaysia. Sime Darby, Malaysia’s biggest oil palm plantation company, is planning to invest in Edo or Cross River, with the former as the first choice destination, key players told me.
According to Olatujoye, the country needs over two million hectares of commercial palm oil plantations to meet up with the current demand.
“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,” Olatujoye said.
Pillai differs in terms of size but agrees that huge investments need to be made.
According to him, Nigeria will need to plant at least 300,000 ha in the near future, which is an investment of over N700 billion.
“This will take us several years. It is a crop that has a long gestation period and takes three to four years to yield fruits and seven to eight years to achieve maturity. The industry requires massive investments, and the government has to come with policies which will support development of the oil palm industry in a holistic manner,” Pillai said.
Smuggling and sabotage
Due to Nigeria’s porous borders and corruption by Nigeria Customs officials, palm oil worth 400,000 tons per annum are smuggled into the country.
This is not only hurting local manufacturers but also robs government of vital revenue.
Another challenge is the sabotage by briefcase multinationals, according to players.
Plantation Owners Forum of Nigeria (POFON) recently accused Olam Nigeria of applying to the federal government to import oil palm products under the West African Trade Liberalisation Scheme (ETLS). Under ETLS, importation from a West African country is tariff-free.
Olam is allegedly asking to import 95,000 metric tonnes (MT) of crude palm oil, 50,000 MT of Stearin in bulk, 60,000MT of crude palm olein, and 50,000MT of palm fatty acid distillates.
In December 2016, a report by Mighty, a US-based environmental lobby group, accused Olam of using suppliers that might use unsustainable practices in parts of Southeast Asia. Olam does not have plantations in Nigeria at the moment but operates in Gabon.
“If this is allowed, it discourages further huge investment by investors like us and creates unhealthy competition in the market,” Nwabuko of Presco told me.
On his part, Pillai said there are illegal and questionable imports into the country which means that genuine investors do not have a level playing field.
“Visit any supermarket or traditional market in Nigeria and you see that plenty of imported vegetable oil, which is banned in the country, is easily available. The current policies are only aiding cross-border trade and smuggling. The leading domestic refineries in Nigeria are facing a crisis and many in the country are not operational,” he said.
Palm oil is currently one of the commodities restricted by the Central Bank of Nigeria (CBN) from accessing the foreign exchange market.
FX crunch and palm oil glut
The CBN stopped the importers of palm oil from accessing the official foreign exchange market in 2016. The policy helped local manufacturers as other local firms were forced to patronise them. This reflected on growth in earnings.
The cumulative revenues of Okomu and Presco rose by 48.08 percent to N29.31 billion in December 2017, from N19.80 billion reported in December 2016.
Combined net income of the two firms increased by 422.17 percent to N26.84 billion in December 2017, from N5.14 billion reported as in December 2016.
Cumulative net profit margin, a measure of efficiency, surged to 91.54 percent in December 2017 from 25.95 billion as at December 2016.
However, the situation is changing as there is glut in the local market caused by smuggling, experts said.
CBN funding poor?
My investigation showed that major players are not satisfied with the funding approach of the CBN.
The CBN runs a programme known as Anchor Borrowers Scheme, which is targeted at funding over 12 crops, one of which is oil palm. I gathered that the CBN held several meetings with the players but there has been a disagreement over tenor of funding.
CBN wants palm oil producers to take its loans and return it in five years but players say it takes 10 to 13 years to even make a profit in the business.
“It is important to fund oil palm exactly the way we fund rice. Each geographical region has a crop of comparative advantage and palm oil and cocoa grow in the southern part of Nigeria just like rice does well in the north,” a player said.
Nothing is lost in oil palm
Experts say oil palm is so significant that nothing is lost in it. Apart from palm oil, it can serve as biofuel, which is economical, says Malaysian Palm Oil Board. Some other by-products of oil palm include fertilizers, animal feed and phenolic antioxidants.
From palm pressed fibres (PPF), it is possible to get de-oiled fibres, fuel, phenolics, and pharmaceuticals.
Protect the investments
Players in the industry need policies to curb smuggling, unbridled importation and excess taxation.
In Cross River, local and state governments are still repeating taxes imposed by the Federal Government. The villagers, at some point, threatened to impose levy on each truck ferrying fertilizer to Wilmar’s plantations in Biase, Calaro and other estates.
PZ Wilmar is not currently making profits owing to the gestation period of palm plantations.
The firm and other players say there is a need to protect them.
Apart from planting two million hectares, experts say there is a need to train smallholders constantly on modern agronomic practices and spacing.
“You need to know the moisture content. If it is low, the palm oil lasts long, but if it is high,, it will not. Only through training will smallholders know this,” Ako of PZ said.
Pillai, on his part, said: “The only viable means of bridging that gap now is develop the domestic plantation industry and to support the local refineries.
“However, critical long terms goals should aim at supporting development of palm oil plantations within Nigeria by providing time bound critical infrastructural and policy support, developing the palm oil supply chain by implementing a robust small holder scheme,” he said.
According to Nwabuko, it will take a sustained aggressive planting of additional hectarage of oil palm plantations and commensurate expansion in processing facilities capacities supported with well thought-out and well monitored effective supportive government policies.
“These should go together with finding solutions to the challenges that inhibit investments in long-term tree crops such as land acquisition, financing, infrastructure, and technical expertise,” he added.
“But 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,” Olatujoye said.
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