Palm oil: How Okomu, Presco can restore Nigeria’s status as global exporter
15/08/2022 (Nairametrics) - Palm oil prices reached record highs in 2022, driven primarily by the disruption in the sunflower oil market caused by the Russia-Ukraine war and export restrictions imposed by the Indonesian government. Nigeria, though the fifth-largest producer of palm oil in the world, remains a net importer of the vegetable fat. Given that palm oil is widely used in cooking and manufacturing consumer food products in Nigeria, high prices have stoked consumer inflation and pushed the government to encourage local producers to meet the supply gap. While most of the palm oil is sourced from small farmers supplying to the local market, large producers, such as Presco and Okomu, are well placed to benefit from government support, strong international demand, and high prices.
Current local production is insufficient to meet domestic demand
Nigeria depends on palm oil imports from Southeast Asia, importing c.25% of palm oil consumed in recent years. Nigeria’s government is trying to reduce this supply shortfall and save valuable foreign exchange. Improved availability of palm oil will also likely encourage the expansion of the packaged food industry in Nigeria, providing a boost to the local economy. In addition, a historical preference for palm oil in cooking, a growing population and low per capita consumption of edible oils provide additional impetus for local production growth.
Palm oil should benefit from the government’s focus on export diversification
Nigeria is the largest economy by GDP and the most populous country in Africa. Despite being the largest consumer of palm oil in Africa in aggregate, the per capita consumption of edible oil remains relatively low. Focus on agricultural products, such as palm oil, gradually declined after the discovery of crude oil in the late 1950s, resulting in the current Nigerian export basket being dominated (c.90% of total exports) by crude oil and petroleum products. The Nigerian government aims to correct this dependence on oil exports. Palm oil is a key agricultural product where the country has the capability to restore its status as a global exporter. To support
local producers, the Nigerian government has introduced tariffs on palm oil imports and is lending financial support to local producers.