MARKET DEVELOPMENT
Towards Nigeria’s Self-Sufficiency in Crude Palm Oil Production
Towards Nigeria’s Self-Sufficiency in Crude Palm Oil Production
01/01/2015 (BusinessDay) - For Nigeria to meet the shortfall in local usage of crude palm oil and be self sufficient, it 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. This would require a minimum of 20 years of palm tree planting at a very large scale.
The Nigerian civil war destroyed almost all of the oil palm plantations and dispersed the small land holders of oil palm, who till date, accounts for 80 percent of the oil palm produced locally. The war, though ended, left behind a legacy of crippled oil palm industry.
According to IndexMundi, a data portal, the domestic palm oil produced totalled 930,000MT in 2014. The consumption of palm oil in Nigeria amounts to 2.0 million MT per annum.
The official figures state that the shortage in oil palm industry is estimated to be around 900,000MT 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 shut down and relocate their business outside the country, like it happened in the past.
But some industries, saddened by unavailability of sufficient oil palm in the Nigerian market, have proactively announced strategic alliances to invest in oil palm plantations. 90 percent of palm oil is consumed by food industry and the remaining 10 percent 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 72,000MT of imported palm oil, and the leading domestic palm oil producers fail to meet this demand.
Analysts estimate that the major importers of crude palm oil (CPO); Nigeria and Benin Republic, import 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 Republic’s exports close to 390,000MT of palm oil annually. Thus, actual shortage of CPO could be as high as 940,000MT if the exports from Benin Republic are taken into consideration.
It is pertinent to note that majority of companies operate 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 percent 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 35 percent 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 Republic and official imports from ECOWAS has removed the sheen from the investment opportunities in the country
Nigeria today produces only 1.7 percent of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.7 percent. Thus, the question of net exports does not arise; however, paradoxically, about 20.0 percent 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 order 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 10percent of local production and the overall domestic oil production was 1.35mn tonnes, the consumption demand was 2.25mn tonnes resulting in a shortfall of 900,000 tons.
Also the economy felt the impact as there was inadequate supply of palm oil, desperate food producers’ use non quality palm oil thereby jeopardising 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 neighbouring countries and with high prices in local market compared to international prices. Also, most of packaged/refined oil is still imported though the 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 Employers meeting held in Abuja by the Federal Ministry of Agric and 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 percent 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, for the sustenance of the little pride of the country’s industrial image, in 2009, the government removed the ban with 35 percent tariff on the importation of palm oil into Nigeria.
The Nigerian civil war destroyed almost all of the oil palm plantations and dispersed the small land holders of oil palm, who till date, accounts for 80 percent of the oil palm produced locally. The war, though ended, left behind a legacy of crippled oil palm industry.
According to IndexMundi, a data portal, the domestic palm oil produced totalled 930,000MT in 2014. The consumption of palm oil in Nigeria amounts to 2.0 million MT per annum.
The official figures state that the shortage in oil palm industry is estimated to be around 900,000MT 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 shut down and relocate their business outside the country, like it happened in the past.
But some industries, saddened by unavailability of sufficient oil palm in the Nigerian market, have proactively announced strategic alliances to invest in oil palm plantations. 90 percent of palm oil is consumed by food industry and the remaining 10 percent 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 72,000MT of imported palm oil, and the leading domestic palm oil producers fail to meet this demand.
Analysts estimate that the major importers of crude palm oil (CPO); Nigeria and Benin Republic, import 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 Republic’s exports close to 390,000MT of palm oil annually. Thus, actual shortage of CPO could be as high as 940,000MT if the exports from Benin Republic are taken into consideration.
It is pertinent to note that majority of companies operate 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 percent 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 35 percent 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 Republic and official imports from ECOWAS has removed the sheen from the investment opportunities in the country
Nigeria today produces only 1.7 percent of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.7 percent. Thus, the question of net exports does not arise; however, paradoxically, about 20.0 percent 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 order 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 10percent of local production and the overall domestic oil production was 1.35mn tonnes, the consumption demand was 2.25mn tonnes resulting in a shortfall of 900,000 tons.
Also the economy felt the impact as there was inadequate supply of palm oil, desperate food producers’ use non quality palm oil thereby jeopardising 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 neighbouring countries and with high prices in local market compared to international prices. Also, most of packaged/refined oil is still imported though the 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 Employers meeting held in Abuja by the Federal Ministry of Agric and 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 percent 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, for the sustenance of the little pride of the country’s industrial image, in 2009, the government removed the ban with 35 percent tariff on the importation of palm oil into Nigeria.