09/08/2023 (Nairametrics) - One of the biggest casualties of the Nigerian civil war was the local palm oil production industry.

By the end of the war, most of the oil palm plantations located in the south-east and south-south regions of Nigeria had been destroyed.

Even worse, the small landholders of oil palm who survived the war had been dispersed, mostly to go seek new beginnings elsewhere.

Half a century after the war ended, Nigeria is yet to recover from this major dent in its local palm oil production. It did not help that the discovery of crude oil in the 1960s and the boom of global crude prices in the 1980s completely distracted the government from nipping the problem in the bud very early on.

Today, despite being the fifth largest producer of palm oil globally, Nigeria crawls behind Columbia and Thailand. The top two highest producers, Indonesia and Malaysia account for 85-90% of the total production globally.

Large producer, larger consumer

IndexMundi, a data portal, states that the domestic palm oil produced in 2014 amounted to 930,000MT, roughly 1 million MT short of the 2.0 million MT of palm oil consumption in Nigeria in the same year.

According to Oil World, palm oil production in Nigeria in 2015 rose to 940,000MTs while consumption rose to 2,517,000MTs, over 62% in deficit. In 2016, production and consumption came to 960,000MTs and 2,480,000MTs. In 2017, it came up to 1,040,000MTs and 2,490,000MTs respectively.

For 2018, 2019, and 2020, the production was 1,130,000MTs; 1,220,000MTs; and 1,280,000MTs respectively, while consumption was 2,523,000MTs; 2,573,000MTs; and 2,591,000MTs.

For the six-year period, even though consumption hovered around 2.5 million MTs, Nigeria could barely push past 1.28 million MTs.

Nigeria is the largest consumer of palm oil in Africa, and with a local production that can barely meet 50% of local consumption alone, it is clear why Nigeria cannot export any crude palm oil, and instead has to import the deficit. Data from the United States Department of Agriculture (USDA) shows that between 2012 and 2021, Nigeria imported over 4.1 million metric tonnes of palm oil.

Palm oil consumption is not likely to reduce soon, and it is in our interest as a country.

A number of manufacturing companies depend on palm oil as a raw material. From the production of noodles, vegetable oil, biscuits, chips, margarine, shortenings, cereals, soaps, toothpaste, washing detergents, and even cosmetics, hundreds of thousands of MTs are being consumed annually.

Most of these manufacturers have to import the kind of high-quality food-grade palm oil they need to sustain production, as only about 20% of the local production meets global standards.

If any difference will be felt in this sector, Nigeria must at least double the current local palm oil production. A ban on crude palm oil importation, as was done in 1986, will not suffice at this point.

As it takes an average of 4-5 years to start producing fruits that can be processed into palm oil. And if the manufacturers are unable to fulfil their demand for the product via importation, their relocating business out of Nigeria could become inevitable, thus worsening the already bad unemployment situation in the country.

The replacement of the ban with a high import duty (35%) on crude palm oil does not seem to have achieved much in encouraging self-sufficiency either, as the high cost is simply passed on to consumers of the end product.

In fact, when you consider the 35% customs duty, plus other levies, you’d find out that importers are paying almost 40% extra in all duties. Who bears the brunt? The customers of course!

The whole idea of the high import duties was to protect the local market – which in this case is made of multiple individual merchants producing at the level they can afford to, and just two large industrial players, Okomu Oil Palm Company and Presco PLC.

Now, what has that changed in the last two decades?

Nothing much! There are hardly any new industrial players in the space, and the two players that should have used the advantage of the high import duties, to increase their production have not increased production in the last 20 years.

If anything, they have just enjoyed the monopoly and passed high prices to the consumers who really did not have much of a choice.

Expectedly, these big players will not want to compete with cheaper-priced palm oil so they are content to have the policy stay as it is, even though it has not benefited Nigerian consumers in any way.

But it is clear that they cannot meet demand.

The quality of CPO locally is not the issue here as Nigerian palm crude is one of the best in the world. Sourcing Crude palm oil locally should actually be a cheaper option for these companies, but even if it were cheap, local production cannot meet their industrial demand for the product. Importation (in spite of the high duties) becomes the only way out and the consumer is the victim.

Nigeria’s population is also projected to increase significantly in the coming years, so in addition to the industrial demands from sectors such as food processing, cosmetics, pharmaceuticals, and biodiesel, one may also need to be concerned about the increasing consumption of palm oil in homes.

Carving out a way forward

From being the world’s largest palm oil producer in the early 1960s and having an enviable 43% of the global market share, Nigeria has dropped to fifth producer servicing barely 1.7% of the global consumption, with Nigeria itself consuming 2.7% of the total global production.

As of 2021, Nigeria produces 1.4 million MTs, barely 3% of Indonesia’s 44.5 million MTs, and about half of Thailand’s 2.7 million MTs production in third position.

Being unable to meet its own local demands, it is little wonder Nigeria was unable to take advantage of Indonesia’s ban on crude palm oil exports in 2022. Even with the backward integration policy now being implemented by big companies, it could take as much as 5 to 7 years to start seeing the returns.

And it would also require considerable interest from the government to encourage more of such.

The first step would be to address the existing policy.

For about two decades, the only thing higher import duties have achieved is to pass on higher prices to consumers.

It has not made the local players increase their production. If anything, it may have made them more complacent and content to just bask in the euphoria of their monopoly and ripping consumers with higher prices. If this policy remains, nothing will change.

If reducing import duties can translate to lower prices of imported goods for the consumers, it could pressure the local players to up their games knowing that there are cheaper alternatives.

This, of course, needs not compromise the quality checks on the imported products. To bring down the price of crude palm oil and meet the demand gap the market should be more democratic for the law of demand and supply to be effective.

Also, the government must consciously encourage more players to step into local production. A channels TV documentary on the palm oil production processes in Nigeria in the South-South and South-West showed that the process is still highly labour dependent in 2022.

The local farmers have to manually harvest and process the palm nuts using labour-intensive local refineries with ridiculous extraction capacities, given all the time and effort that goes in.

This also means that their production will be largely subsistent, not large-scale enough to make a significant difference.

A level playing ground needs to be put in place, alongside a long-term policy that will encourage local and foreign investments in the production of crude palm oil.

A first step to increasing the quality, and quantity of local crude palm oil production would be making sufficient investments to mechanize the process.

While it is okay to let the local producers continue with what they already do, it is already clear that at the pace and scale they operate, they cannot cross certain production thresholds.

This could involve importing automated refineries to be situated in strategic states across the country, and maybe even providing some to farmer groups to increase and encourage their processing.

Nigeria needs to move beyond the outdated processing methods and infrastructure currently being employed for this critical product.

With a higher extraction capacity, such machines can significantly increase the quantity produced, and the cleaner processes resulting from it will ensure higher quality.

Adequate investment in modern technology is needed. What this could also achieve for us as a country is to encourage more young people into the oil palm business. Some smallholder farmers are of the opinion that the amount of labour and crude processes involved could be a discouraging factor for younger educated Nigerians to enter the sector.

For instance, Premium Times reported that Oil palm entrepreneurs lamented that the crude way of processing palm fruits by women is too strenuous, inefficient, and unsustainable.

In addition to that, it has also become more difficult to find labourers due to the rural-urban migration in search of greener pastures.

This has also increased the level of scarcity and high cost of locally produced palm oil while having a negative impact on the demand and supply ratio in the country.

Automated palm oil production plants could be operated on a subscription basis, thus allowing farmers who would rather stay away from refining to focus on farming.

Seeing as the 35% import duty on crude palm oil has only made life harder for Nigerians who bear the increased costs of production during purchase, the government might need to reconsider it as well.

Especially since it has done nothing to reduce the demand for the product, or increase local production.

Nigeria is blessed with lands to plant enough palm seedlings to double production in the next decade,

These farmers also have to grapple with pest infestation, insufficient or excessive rainfall which influences the quantity and quality of palm produce.

The insecurity situation in the country also means that they have to grapple with losses that result from attacks from pastoralists.

All of these point to the direction of government intervention in the form of improved seedlings, security, and funding to aid the cost of land preparation and planting materials.

https://nairametrics.com/2023/08/09/palm-oil-crisis-grips-nigeria-the-time-for-action-is-now/