MARKET DEVELOPMENT
Palm Oil Importation as Strategic Industry Stabiliser
Palm Oil Importation as Strategic Industry Stabiliser
02/01/2015 (The Guardian Nigeria) - As early as 1901, Nigeria was producing all palm oil sold in the world market and it was a dominant source of foreign exchange earnings. Nigeria’s total palm oil productions include Palm groove and substantial farming.
Up until the 60s, Nigeria was the world’s largest producer of palm oil accounting for 43 percent of global palm oil production. But due to over-reliance on traditional production methods, excessive tapping of palm tree for palm wine, break up attempt in 1967-70 which was actually fought in areas where palm activities were predominant, Nigeria’s ability to meet up with the global rise in demand was curtailed.
Though production was increasing during that period, it was not increased at a rate that could meet up with rising global demand and consumption.Furthermore the current production yields in the country indicate a serious shortage of capital investment to upgrade the machinery and plant equipments to reach to world level standards which Indonesia and Malyasia has attained.
Historically, Nigeria is largely an agrarian society despite lack of modern farm implements which undermined the potential for large-scale production. Agriculture was the mainstay of the economy during the pre-colonial and the colonial period.
Nigeria emerged in the first decade of her independence as a leading exporter of many major agricultural commodities. Nigeria was a leading exporter of palm kernel, and largest producer and exporter of palm oil. It was also the second largest producer of cocoa in the world. During that time, smallholder farmers collectively produced 90 percent of the food needs and 70 per cent of Nigeria’s export earnings — a dominant share of theCountry’s GDP.
However, in 1956 crude oil was discovered in commercial quantity. This paved the way for the gradual neglect of agriculture by successive governments and the civil war which began in 1967 and lasted till 1970 did a major damage to the palm oil sector of the economy. 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, Ebonyi, Ekiti, Enugu, Ondo, Ogun, Osun, Oyo, Imo and Rivers.
In the 70s, Crude oil became the dominant source of revenue while agricultural production nose-dived considerably. From over 60 percent in the late 60s, the contribution of agriculture to the GDP plummeted to 22.2 per cent in the 80s. Recent data put the contribution of agriculture to the country GDP at 42 per cent.Many farmers engage in farming at subsistence level.
This in turn has contributed to food insufficiency and subsequently led to importation of food to supplement local production. Nigeria has also lost its place in agricultural exports even in area it once dominated. In palm oil supply, Nigeria now produces a meager 1.7 per cent 34 of total world production which is inadequate for local consumption which is put at about 2.7 per cent. Malaysia, a country Nigeria gave palm oil seedlingsto, has overtaken Nigeria as one of the largest producers andleading exporters of palm oil in the world.
Malaysia and Indonesia produce 83 per cent of total world production of palm oil. 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, which has remained in a state of comatose till date.
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 930,000 MT in 2014.
As is visible, in the chart above, the growth in oil palm has stagnated at 930,000 MT since 2013. The consumption of palm oil in Nigeria amounts to 2.0 million MT per annum.
The official figures states that the shortage in oil palm industry is estimated to be around 900,000 MT annually.This poses a very precarious situation for the manufacturing sector that depends largely on CPO as a major source of raw material. If this shortage is not filled with importation of high quality food grade palm oil, the economy will lose further investment in the manufacturing sector as companies would shot down and relocate their business outside the country, like it happened in the past.
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 through informal channels as Benin exports close to 390,000 MT of palm oil annually. Thus, actual shortage of CPO could be as high as 940,000 MT if the exports from Benin Republic are taken into consideration.
It is pertinent to note that majority of companies operating in Nigeria import from the ECOWAS states at zero duty. The level of production in the ECOWAS states is not high enough to support the quantity of CPO imported in those states, but rather, some companies are importing through the ECOWAS states and bringing it in through informal channels without paying any duty to government. More than 50 per cent of total import in Nigeria is from ECOWAS at zero duty. These are areas that the government must turn its search light on to ensure all imported CPO pass through the right channel and the payment of the 35percent duty is paid to increase government revenue.
Importation from ECOWAS into Nigeria has not only eradicated the option of receiving revenue through duty but has also curtailed the economic growth with less investments coming into Nigeria to develop the palm oil sector. Having been at the forefront of palm oil production, Nigeria today is losing investments worth billions of naira as parallel market imports from benin and official imports from ECOWAS has removed the sheen from the investment opportunities in the Country
90.per cent 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. Saddened by unavailability of sufficient oil palm in the Nigerian market, some industries have proactively announced strategic alliances to invest in oil palm plantations.
Nigeria today produces only 1.7 per cent of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.7 per cent. Thus, the question of net exports doesn’t arise; however, paradoxically, about 20.0 per cent of the oil palm produced domestically is considered of high quality and clears all the seventeen tests for being an exportable commodity.
Of course, the Federal Government is striving to sustain the crude palm oil industry of the country but the country needs to have a stable economy and survival in the palm oil industry. The first ban on importation of vegetable oil was in 1986 by the federal Government but the situation continues to deteriorate. In 1995, there was replacement of existing ban with high import duty to improve on the worsened situation and it worked but the Federal Government returned and sustained the total ban within 2002 – 2008 to encourage the plantation of palm trees and oil refineries in other to boost the production of palm oil.
The ban had an effect; Local production was unable to meet the quantity as well as quality requirements of the industry leading to scarcity of raw materials and inflation, Large estate in the palm oil plantations and output in Nigeria which is the only category producing palm oil used by the food industry produced 80,000tons annually which is only 10% of local production and the overall domestic oil production was 1.35 million tonnes,the consumption demand was 2.25 million tonnes resulting in a shortfall of 900,000 tonnes.
Also the economy felt the impact as there was inadequate supply of palm oil, desperate food producers’ use non quality palm oil thereby jeopardizing public health and safety, the future industrial growth was threatened because palm oil was and is one of the widely used raw material and migration of industries and investments in Nigeria to other neighboring countries and with high prices in local market compare to international prices. Also, most of packaged/refined oil is still imported though ban is in place and there were influx of oil under ECOWAS scheme though ECOWAS countries do not produce so much of oil.
Due to the resultant effect of the shortfall, over 11 companies were out of production in 2009 due to lack of palm oil input. Importation from ECOWAS into Nigeria has not only eradicated the option of receiving revenue through duty but has also curtailed the economic growth with less investments coming into Nigeria to develop the palm oil sector. Having been at the forefront of palm oil production, Nigeria today is losing investments worth billions of naira as parallel market imports from Benin and official imports from ECOWAS has removed the sheen from the investment opportunities in the Country
In 2009, the Federal Government saw the need to bridge the low / non availability of CPO so a stakeholder forum was organised for Members of the Association of Food, Beverage and Tobacco Employersmeeting held in Abuja by the federal Ministry of Agric & Water Resources. At the end of the stakeholders forum in 2009 where the shortfall of 300,000 tons were identified, the government removed the ban with 35 per cent tariff on importation of palm oil and for Nigeria to meet the shortfall, the federal government should encourage new entrance.
So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the little pride of the country’s industrial image and in 2009, the government removed the ban with 35% tariff on the importation of palm oil into Nigeria.
For Nigeria to meet the shortfall in local usage of crude palm oil and be self sufficient, Nigeria needs a total plantation of 300, 000 hectares of land. This no doubt is huge and requires the support of government through its Ministry of Agriculture by providing suitable and adequate land for willing investors to invest in large estate plantations in the country.
The road to being self-sufficient is a long one as a whopping $10 billion will be required and a minimum of 20 years of palm tree planting at a very large scale.
And for now, importation of palm oil serves, as the best alternative to the low quantity produced in the country pending the development of large estate plantations.
Up until the 60s, Nigeria was the world’s largest producer of palm oil accounting for 43 percent of global palm oil production. But due to over-reliance on traditional production methods, excessive tapping of palm tree for palm wine, break up attempt in 1967-70 which was actually fought in areas where palm activities were predominant, Nigeria’s ability to meet up with the global rise in demand was curtailed.
Though production was increasing during that period, it was not increased at a rate that could meet up with rising global demand and consumption.Furthermore the current production yields in the country indicate a serious shortage of capital investment to upgrade the machinery and plant equipments to reach to world level standards which Indonesia and Malyasia has attained.
Historically, Nigeria is largely an agrarian society despite lack of modern farm implements which undermined the potential for large-scale production. Agriculture was the mainstay of the economy during the pre-colonial and the colonial period.
Nigeria emerged in the first decade of her independence as a leading exporter of many major agricultural commodities. Nigeria was a leading exporter of palm kernel, and largest producer and exporter of palm oil. It was also the second largest producer of cocoa in the world. During that time, smallholder farmers collectively produced 90 percent of the food needs and 70 per cent of Nigeria’s export earnings — a dominant share of theCountry’s GDP.
However, in 1956 crude oil was discovered in commercial quantity. This paved the way for the gradual neglect of agriculture by successive governments and the civil war which began in 1967 and lasted till 1970 did a major damage to the palm oil sector of the economy. 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, Ebonyi, Ekiti, Enugu, Ondo, Ogun, Osun, Oyo, Imo and Rivers.
In the 70s, Crude oil became the dominant source of revenue while agricultural production nose-dived considerably. From over 60 percent in the late 60s, the contribution of agriculture to the GDP plummeted to 22.2 per cent in the 80s. Recent data put the contribution of agriculture to the country GDP at 42 per cent.Many farmers engage in farming at subsistence level.
This in turn has contributed to food insufficiency and subsequently led to importation of food to supplement local production. Nigeria has also lost its place in agricultural exports even in area it once dominated. In palm oil supply, Nigeria now produces a meager 1.7 per cent 34 of total world production which is inadequate for local consumption which is put at about 2.7 per cent. Malaysia, a country Nigeria gave palm oil seedlingsto, has overtaken Nigeria as one of the largest producers andleading exporters of palm oil in the world.
Malaysia and Indonesia produce 83 per cent of total world production of palm oil. 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, which has remained in a state of comatose till date.
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 930,000 MT in 2014.
As is visible, in the chart above, the growth in oil palm has stagnated at 930,000 MT since 2013. The consumption of palm oil in Nigeria amounts to 2.0 million MT per annum.
The official figures states that the shortage in oil palm industry is estimated to be around 900,000 MT annually.This poses a very precarious situation for the manufacturing sector that depends largely on CPO as a major source of raw material. If this shortage is not filled with importation of high quality food grade palm oil, the economy will lose further investment in the manufacturing sector as companies would shot down and relocate their business outside the country, like it happened in the past.
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 through informal channels as Benin exports close to 390,000 MT of palm oil annually. Thus, actual shortage of CPO could be as high as 940,000 MT if the exports from Benin Republic are taken into consideration.
It is pertinent to note that majority of companies operating in Nigeria import from the ECOWAS states at zero duty. The level of production in the ECOWAS states is not high enough to support the quantity of CPO imported in those states, but rather, some companies are importing through the ECOWAS states and bringing it in through informal channels without paying any duty to government. More than 50 per cent of total import in Nigeria is from ECOWAS at zero duty. These are areas that the government must turn its search light on to ensure all imported CPO pass through the right channel and the payment of the 35percent duty is paid to increase government revenue.
Importation from ECOWAS into Nigeria has not only eradicated the option of receiving revenue through duty but has also curtailed the economic growth with less investments coming into Nigeria to develop the palm oil sector. Having been at the forefront of palm oil production, Nigeria today is losing investments worth billions of naira as parallel market imports from benin and official imports from ECOWAS has removed the sheen from the investment opportunities in the Country
90.per cent 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. Saddened by unavailability of sufficient oil palm in the Nigerian market, some industries have proactively announced strategic alliances to invest in oil palm plantations.
Nigeria today produces only 1.7 per cent of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.7 per cent. Thus, the question of net exports doesn’t arise; however, paradoxically, about 20.0 per cent of the oil palm produced domestically is considered of high quality and clears all the seventeen tests for being an exportable commodity.
Of course, the Federal Government is striving to sustain the crude palm oil industry of the country but the country needs to have a stable economy and survival in the palm oil industry. The first ban on importation of vegetable oil was in 1986 by the federal Government but the situation continues to deteriorate. In 1995, there was replacement of existing ban with high import duty to improve on the worsened situation and it worked but the Federal Government returned and sustained the total ban within 2002 – 2008 to encourage the plantation of palm trees and oil refineries in other to boost the production of palm oil.
The ban had an effect; Local production was unable to meet the quantity as well as quality requirements of the industry leading to scarcity of raw materials and inflation, Large estate in the palm oil plantations and output in Nigeria which is the only category producing palm oil used by the food industry produced 80,000tons annually which is only 10% of local production and the overall domestic oil production was 1.35 million tonnes,the consumption demand was 2.25 million tonnes resulting in a shortfall of 900,000 tonnes.
Also the economy felt the impact as there was inadequate supply of palm oil, desperate food producers’ use non quality palm oil thereby jeopardizing public health and safety, the future industrial growth was threatened because palm oil was and is one of the widely used raw material and migration of industries and investments in Nigeria to other neighboring countries and with high prices in local market compare to international prices. Also, most of packaged/refined oil is still imported though ban is in place and there were influx of oil under ECOWAS scheme though ECOWAS countries do not produce so much of oil.
Due to the resultant effect of the shortfall, over 11 companies were out of production in 2009 due to lack of palm oil input. Importation from ECOWAS into Nigeria has not only eradicated the option of receiving revenue through duty but has also curtailed the economic growth with less investments coming into Nigeria to develop the palm oil sector. Having been at the forefront of palm oil production, Nigeria today is losing investments worth billions of naira as parallel market imports from Benin and official imports from ECOWAS has removed the sheen from the investment opportunities in the Country
In 2009, the Federal Government saw the need to bridge the low / non availability of CPO so a stakeholder forum was organised for Members of the Association of Food, Beverage and Tobacco Employersmeeting held in Abuja by the federal Ministry of Agric & Water Resources. At the end of the stakeholders forum in 2009 where the shortfall of 300,000 tons were identified, the government removed the ban with 35 per cent tariff on importation of palm oil and for Nigeria to meet the shortfall, the federal government should encourage new entrance.
So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the little pride of the country’s industrial image and in 2009, the government removed the ban with 35% tariff on the importation of palm oil into Nigeria.
For Nigeria to meet the shortfall in local usage of crude palm oil and be self sufficient, Nigeria needs a total plantation of 300, 000 hectares of land. This no doubt is huge and requires the support of government through its Ministry of Agriculture by providing suitable and adequate land for willing investors to invest in large estate plantations in the country.
The road to being self-sufficient is a long one as a whopping $10 billion will be required and a minimum of 20 years of palm tree planting at a very large scale.
And for now, importation of palm oil serves, as the best alternative to the low quantity produced in the country pending the development of large estate plantations.