27/09/2012 (BusinessDay) - The foundation for Partnership Initiatives in the Niger Delta (PIND) recently released a report analysing palm oil value chain in Nigeria.

While Nigeria is one of the world’s largest producers of palm oil, it is still a net importer owing to the inability to produce enough palm oil to meet local demand.

Domestic production is nearly 900,000 tons and there is an estimated overall gap in Nigeria of between 150,000 and 300,000 tons of technical palm oil (TPO), and 200,000 tons of special palm oil (SPO), much of which is currently met through imports.

According to PIND, the main forces driving the increased demand for TPO palm oil in Nigeria include the increasing household consumption of palm oil due to increased income leading to changing consumer consumption patterns, and increasing demand from the primary food processing industry.

At the industrial level, the secondary processors are driving demand for SPO for further refining to sell into the manufacturing industries.

Nine states - Akwa Ibom, Abia, Rivers, Edo, Imo, Ondo, Bayelsa, Cross River and Delta - account for about 57 percent of total Nigerian palm oil production.

This production is dominated by the collection of palm fresh fruit bunches (FFB) from wild groves (74 percent of area and about 50 percent of supply of FFB), followed by production from private plantations (small, medium and large farmers, 19 percent of area and 34 percent of supply of fruit) and large corporate and government owned plantations (about 7 percent of area 25 percent supply of fruit).

Global palm oil prices are also rising significantly, doubling in the last year to levels of over $1,042/metric ton as of June 2011 for Malaysian benchmark grades of crude oil.

The forecast is for continued rises boosted by demand for use in manufactured food and other products, as well as from the bio-diesel sector as global crude oil prices soar.

Presently, the domestic price of palm oil in Nigeria is also rising steadily. Indicative figures suggest the price of crude palm oil (ex-local processors) has risen by around 67 percent in the past couple of years to approximately $1,300/mt.

Pricing of the end products reflect a significant mark-up between bulk and wholesale, 30 percent for TPO, as well as a significant difference between bulk SPO and bulk TPO, 17 percent.

The latter indicates that there is greater value add for the SPO, and should include some positive incentives back to farmers to produce palm fruit for SPO (i.e. deliver the fruit within less than 12 hours of harvest).

PIND notes that growing the size of the overall value chain will require improving the processing efficiency, in particular at the small commercial level that processes most of the TPO, an increasing investment in re-planting and upgrading the varieties of existing palm plantations with newer higher oil content varieties, and enhanced linkages between the processors of SPO and the private farmers.

In Nigeria, the volume of oil required in the traditional food market is three times more than the requirement in the industrial market, so the household traditional market is therefore the major determinant of supply deficit in the country.

Demand for oil palm product is based largely on price, quality and delivery with minimal considerations given to environmental aspects.

The demand of TPO by household consumers is increasing due to growth in population which normally leads to growth in consumption.

The price of palm oil in the rural areas is N240/litre, while urban households are paying N260/litre from retailers, according to PIND.

The PIND study also finds that SPO always sells at a higher price than TPO and supplies the industrial market, which utilises the high quality crude and refined palm oil and fractions (olein and stearin) as raw materials for their products: soaps, frying oils for noodles, bakery fats, etc.

The foremost food products companies in Nigeria that are major buyers of SPO products include: De-United Industries (manufacturer of Indomie noodles), May & Baker (manufacturer of Mimi noodles), Honeywell Foods (manufacturer of O-noodles), Chikki Foods (manufacturer of Chilkki noodles), UAC Foods (general food products and user of palm olein and palm stearin. Sumal Foods (special oil blends), Nasco Foods (buyer of palm stearin), Unilever (general user of palm stearin), Consolidated Foods (general user of palm stearin), Okin Biscuit (user of palm stearin as ingredient for biscuit making), and Standard Biscuit (user of palm stearin as ingredient for biscuit making).

The study by PIND concludes that improving the local capacity of palm oil production in Nigeria would not only impact positively on food security and local economy but also portend huge prospects for future exports that will advance Nigeria’s economy.