Nigeria’s unsustainable palm oil import bill: need to support Okomu oil plc and Presco plc
A worker holds harvested oil palm fruit for a photograph at the PT Perkebunan Nusantara plantation and production factory in Kertajaya, Banten Province, Indonesia, on Monday, June 20, 2011. PT Perkebunan Nusantara VIII is a state owned palm fruit plantation and palm oil factory. Photographer: Dadang Tri/Bloomberg via Getty Images
There is need for change of policy towards Okomu Oil Plc and Presco Plc as the world shifts attention away from crude oil and focus on the rising demand for palm oil. Okomu Oil Plc and Presco Plc have made Nigeria the central hub of palm oil production in Africa which accounts for 4% of total world’s palm oil outputs. The two companies have made Nigeria relevant in the production of palm oil.
The news that Nigeria imported more than N116 billion of palm oil in the last three quarters of 2017 is worrisome. Some newspapers reported that Nigeria imported 450,000 tons of crude palm oil valued at N116.3 billion ($323.1 million) in the first 10 months of this year. The amount imported increased by 12 percent from July because of rising demand, thus pushing up the price from $663 per metric ton in July to $718 per ton as at November 2017. Federal Government should support Okomu Oil PLC and Presco Plc by enacting a law that will allow the two companies to borrow from the huge pension fund to expand their plantations with zero or little interest rate. Federal Government could also allow Okomu Oil PLC and Presco Plc to manage certain amount of our foreign reserve to help the companies to expand their palm oil plantations to meet up with Nigeria’s palm oil import.
Federal Government is said to be in a fix because it would like to earn forex to shore reserves by selling crude oil; at same time, it faces the steep shortage of palm oil of about 500,000 metric tonnes that can only be filled in the short term via import.
Malaysia has jumped to number two in the world with annual production of 17.73 million tonnes tons while Nigeria is number four with 970 metric tons after Thailand. Though Nigeria’s production has increased from 537 million metric tons in 1960, the growth was slower than what the growth in population and industrial demands required. This has left a supply gap of about 500, 000 metric tons, according to FBNQuest Research.
Results from the country’s biggest palm oil players, Presco Plc and Okomu Oil Plc suggest that the industries are booming and can do more with a lot of support from states and Federal Government. In this regard, government can encourage Okomu Oil and Presco PLC by introducing policies like tax waiver that would help the cause and make available farm inputs. After recording impressive results in 2016, Okomu Oil Palm and Presco Plc did not fail to deliver in the first quarter of 2017, effectively validating the federal government’s calls for more focus on agriculture. The Nigerian government should be keen to increase the usage of palm oil, with plantation industries and commodities and review stock and stabilize prices. There is need to support Okomu Oil and Presco Plc to reduce our unsustainable palm oil import bill. We should encourage the companies to investment more in palm plantation to reduce unemployment and reduce palm oil importation in Nigeria. Okomu Oil PLC and Presco Plc have been intimately involved in Nigeria’s economic development. The companies bring reliable people and small businesses that are creating thousands of jobs. In Nigeria, the amount of palm oil exported is very low due to the lack of production surplus. Consequently, there is no incentive from government to export the commodity. Exports remain low, representing an average less than 1% of the domestic supply.
Few decades ago, Nigeria was one of the world’s largest producers of palm oil but today we import nearly 600,000 metric tonnes while Indonesia and Malaysia combine to export over 90 percent of global demand. The country’s palm oil production is equally gaining traction. As evidence, Presco Plc and Okomu Oil Palm Plc, two of Nigeria’s largest palm oil producers, have witnessed significant improvement in earnings with associated uptick in share prices. In its 2017 interim half year result, Presco Plc revenue rose from N7.5bn to N12.8bn while Okomu Oil Palm Plc turnover jumped to N12.5bn from N7.6bn reported the previous period.
Palm oil is the main vegetable oil produced in Nigeria. In the 60’s, Nigeria was the world leader producer and exporter of palm oil because of the efforts of Okomu Oil and PRESCO PLC. However, Nigeria has lost its dominant position in the international trade after 1980s and is currently the third largest producer, far behind Indonesia and Malaysia (45% and 39% of the world production in 2016) (FAOSTAT, 2016). Its output indeed represented only 3% of the world production in 2010 (FOASTAT, 2017). As regards to palm oil production in Africa, however, Nigeria’s production is estimated at 55% of the African output because of the operations of Okomu Oil and Presco Plc..
While Malaysia and Indonesia productions have drastically increased over the 1990-2010 period, it has barely been the case for Nigeria, mainly because of its reliance on traditional production methods. Palm oil production accounted for 1.5% of the national agricultural GDP in 2010.
Even if palm oil production has been rising since 1990, the output is not enough to match the local consumption. Indeed, the national demand has grown faster than the domestic supply. Production deficit is thus about 150,000 tonnes per annum. Consequently, Nigeria imports palm oil to satisfy the local demand. However, Nigeria has a potential to increase its production through the application of improved processing methods and better marketing.
Nigeria is a net importer of palm oil. Palm oil is the third food commodity imported in terms of quantity, after sugar and wheat, accounting for 9% of the total agricultural imports volume in 2016 (FAOSTAT, 2016). Imports increased steadily between 2005 and 2016 and represented an average 23% of the total domestic supply. Indeed, Ghana, Togo and Benin import volumes of palm oil are far above their demand requirements, which suggests that more than 80% of their imports are re-exported to Nigeria through informal trade.
Two listed companies- Okomu Oil Palm Plc and Presco Plc, playing the oil palm and rubber production segments of the agricultural sector, have been recording impressive performances in the recent years. They have not only been turning in profits but they have also been declaring dividends to shareholders and paying taxes to the government. These are indications that if more companies invest in the agricultural sector and the government provides the conducive environment for businesses to drive, the dependency on crude oil as the mainstay of the economy would be a thing of the past in no distant future. Besides, more shareholders would smile to the bank, while the government would also enjoy more benefits in terms of taxes paid by such companies. Despite the challenging operating environment in 2016, Okomu Oil recorded improved performance in both top and bottom-lines. It has also consolidated the 2016 full year performance with similarly impressive results for the first (Q1) quarter ended March 31, 2017.
The recent build up in the nation’s external reserves was attributed mainly to the upsurge in oil prices sustained by fiscal prudence. The quest to mitigate the burden imposed by high oil prices on the economy of highly industrialized nations is already driving research into the exploitation and utilization of alternative energy sources. Consequently, there have recently been calls for the Nigeria to establish a “Fund for Future Generations” in which to invest excess earnings from oil in order to insulate the economy from the uncertainty and volatility of oil prices. The establishment of such a fund in Nigeria can serve the twin objectives of stabilizing the volatility of fiscal revenues and creating pool of capital that can provide an alternative source of foreign exchange earnings. Let us invest such Fund for Future Generations in Okomu Oil Plc and Presco plc to reduce. Nigeria’s unsustainable palm oil import bill.
Inwalomhe Donald writes from Benin City via firstname.lastname@example.org
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