Between the 1950s and 1960s, Nigena was the leader in the world oil palm market. From that enviable height of controlling about 40 per cent of the world market, Nigeria slipped to the fifth position, barely producing three per cent of the global supply of oil palm.
The discovery of crude oil in commercial quantity in Oloibiri in current Bayelsa State set the pace for the relegation of oil palm production in particular and the agricultural sector in general in the generation of foreign exchange for national sustenance.
The country abandoned agriculture because crude oil money comes in quite easier in contrast to the rigour and stress associated with production and foreign exchange earnings through agriculture.
But, in other to encourage import substitution through local production, value addition and export of non-oil products, the Central Bank of Nigeria (CBN) under the leadership of Mr Godwin Emefiele on June 23, 2015, placed a ban on accessing foreign exchange (FX) in the official market for the importation of 41 items, especially agricultural products.
Just after President Mohammadu Buhari took office in 2015, the government introduced the ban. Importers of crude palm oil also have to pay a duty of 35 per cent.
Little did Nigeria and other countries that depend on import know that in 2022, large exporters of some of these items particularly Palm kernel/palm oil products would place a ban on their exports.
Palm oil, the most produced, consumed and traded edible oil in the world followed by soybean oil, rapeseed oil and sunflower seed oil, rallied last two weeks after Indonesia, the world’s biggest exporter, said it will ban all exports to deal with rising domestic cost of edible oil.
Then, in 2019, the government unveiled a $500 million plan to increase funding to Nigerian producers through low interest loans. The aim was to raise domestic output by 700 per cent by 2027, while meeting local demand.
As a result, domestic palm oil production grew from 1.03 million tonnes in 2017/18 to 1.26 million tonnes in 2020/21, according to the US Department of Agriculture. The USDA projects it will increase to 1.4 million tonnes in 2021/2022.
Supply challenges
Over the past couple of decades there has been a dismal retrogression, with Nigeria becoming a net importer of oil palm to meet up with the demand gap in the country. There are a myriad of production challenges confronting oil palm production and the consequent low or inadequate yield.
These range from the age of palm trees which can affect the overall output; inadequate capital for innovation; limited access to land due to the land tenure system; continuous destruction of wild groves from which the fresh oil palrn fruit are harvested; difficulty accessing high value seedlings.
Other challenges facing Palm oil production include – lack of proper scaling of milling technology which result in sub optimal output, inefficient synergy between stakeholders in the value chain, inability of the small millers to meet industrial Quality, Quantity and timeliness of delivery, access to fertilizer is constrained, high cost of transportation and labour, poor or inadequate management of plantations, under-capacity utilisation
To meet up with the domestic demand for both the Technical Palm Oil (TRO) used in industry and Special Palm Oil (SPO) used by households, the value of imports accounts for about N60billion per annum.
To achieve 50 per cent Import substitution through Production upgrade within the next 10 years, there is a need to bridge demand deficits for domestic production of fresh fruit bunches from 8.5 million MT recorded in 2010.
CBN’s foresight and efforts
Available records show that the narrative is changing with the intervention of the CBN in the sector.
The CBN facilitated meetings with stakeholders, including state governors and other top government functionaries from the oil palm producing states. Emefiele sought their buy-in and set up a partnership model that would stimulate investments in the oil palm plantations.
Thirteen governors of oil palm producing states pledged to make available a total of 904, 624 hectares for development under the Anchor Borrowers Programme. In addition the Bank, working with the fiscal authorities, has matched investors with proven capabilities with states to process necessary documentations and titling requirements. These investors were to follow due Process and apply for loans to undertake oil palm development initiatives of the Bank
Emefiele stated that the ultimate goal was to overtake the Gambia and Colombia to become the third largest producer over the next few years through increased oil palm production from 1,250,000MT to 2,500,000MT by 2028 through the cultivation of approximately 350 000Ha (cultivation by 2025).
Core objectives of the Intervention according to the apex bank include: to meet local demand of palm oil and improve local processing quality and standards, conserve foreign exchange reserves, create jobs and enhance the skills of Nigerian people along the oil Palm value chain, facilitate easier access to funding for oil majors, SMEs and smallholders as well as, improve and grow the economy.
In line with its objectives, the CBN has so far funded oil palm majors and SMEs towards Plantation development and mill construction/upgrade, developed the outgrowers framework for implementation (Outgrowers scheme links smallholders to oil palm majors who serve as anchor companies and bear credit risk), implemented a pilot scheme of the outgrowers with PZ Wilmer and Zenith Bank in Cross River State in September, 2020.
The Bank has also facilitated land allocation to investors by state governments. So far, 170.000 Ha has been allocated to investors across 11 states; facilitated discussions between moribund Oil Palm estates (eg Adapalm Imo State and Apoje & Lorniro, Ogun States) and possible investors (eg SIAT Nig Ltd, PZ Wilmar and JB Farrns).
The CBN also facilitated the flag-off of Red Cold project by Ondo State in which the State allocated a total of 54,000Hectres to oil palm companies and commenced the cultivation of 6,000 Ha by smallholder farmers (Sunshine Palm oil estate Ltd) which will be cultivated across three senatorial districts in phases. DUFIL Planted 3.200 Ha as part of the target of 5,000Ha planned for 2021 planting Season.
The Bank has obtained approval for N7billion for SIAT Nig Lid for the development of additional 7,000Ha that will be phased in three years.
As at January 2020 a total of N30 billion was disbursed to seven oil palm companies to support their expansion programmes, with the CBN expecting 40 applications from investors across Nigeria and currently, the Bank is working closely with the Nigerian Institute for Oil Palm Research (NIFOR) to enhance their seedling production capacity and standard.
Judging from the initiatives, a herd of analysts have described Emefiele as the man who saw tomorrow in terms of items that can be produced in Nigeria, even though supply gap of some of the items remains to be filled.
“Once they put palm oil on the list of those that can’t access FX, it triggered this need for domestic production,” says Chibundu Emeka-Onyenacho, sub-Saharan Africa research analyst at investment bank Renaissance Capital.
Emeka-Onyenacho adds that, whereas Nigeria imported about 34 per cent of its palm oil in 2014, the figure has hovered at around 25 per cent since the FX restrictions were introduced.
In 2018 and 2019, Nigeria’s palm oil production averaged to 1.1 million metric tonnes, and then it climbed to 1.2 million metric tonnes and 1.4 million metric tonnes in 2020 and 2021 respectively.
According to CBN’s projection, if Nigeria had maintained its market dominance in the global palm oil industry, the country would have been earning approximately $20 billion annually from cultivation and processing of palm oil as of today. That’s about half the 2022 federal budget.
Nigeria’s government, through the central bank (CBN), is pumping billions of naira in loans to assist farmers and investors in the industry.
Akwa Ibom State, local authorities said they are using a CBN loan to revamp more than 3,000 hectares of oil palm plantation abandoned over 30 years ago.
The plantation has 200,000 oil palm trees and a 300,000-capacity nursery for seedlings.
The CBN recently opened Development Finance Offices in all its branches across the nation in order to move the administration of the Agricultural Credit Guarantee Scheme (ACGS) closer to farmers.
Besides the ABP, other such policy initiatives by CBN include the Agriculture Credit Guarantee Scheme (ACGS), Commercial Agriculture Credit Scheme, Agriculture Support Scheme, Nigerian Incentive-Based Risk Sharing in Agricultural Lending Programme (NISRAL) and Interest Draw-back Programme.
On the impact of these initiatives, Emefiele said ‘’our medium-term goal is to fast-track growth above historic average. Economic activities may reach pre-pandemic levels if the resilience of non-oil activities (especially agriculture and manufacturing sectors) is given continued impetus.’’
During an inspection tour of a palm plantation this year at Odighi village in the Ovia North East Local Government Area of Edo State, Emefiele “We produce what we eat and eat what we produce by coming up with several initiatives aimed at repositioning the sector with a view to creating employment opportunities as well as growing the gross domestic product of the country.”
Emefiele said with the rising cost of food items across the globe, Nigeria would have been in dire circumstances if the proactive measures were not taken.
On his assessment of the developments in the farm, Emefiele, who was elated with the strides being recorded in the production of maize and cassava, expressed optimism that palm produce’s harvests would commence in the next 12 months.
Emefiele, more than any CBN governor, has defended the naira just to protect the future of Nigeria. He has shown courage, dared the forex grabbers and frustrated the smugglers. Above all, he has returned the nation to agriculture such that locally produced agricultural produce now form a huge part of menu for the population and have become a greater part of the raw materials for the nation’s primary sector.
Implications of Indonesia’s decision
A herd of analysts have argued that Indonesia’s surprise ban on palm oil exports offers Nigeria a lucrative opportunity to plug the gap as international buyers scramble for alternatives. Others are skeptical, saying that a county that has not met its domestic demand cannot plug such gap created by Indonesia.
Already, palm oil futures for July delivery rose seven per cent to 6,799 ringgit ($1,564) a tonne in Kuala Lumpur, the highest since March 11, while the nearby May prices climbed more than nine per cent to a record for the contract, according to Bloomberg.
Obviously, the decision is already inflating prices around the world, including in Nigeria, because palm oil is used in thousands of products from food to personal care items. The prices of packaged food such as biscuits, noodles, and cakes are expected to rise.
“It will affect Africa badly because we import a lot of palm oil from that part of the world,” said Billy Ghansah, agriculture coordinator at Nigeria’s Okomu Oil Palm Company. He said the export ban is too abrupt and will affect Africa significantly.
Felix Nwabuko, the managing director of Presco Plc, said the ban will affect many African countries that do not have as many palm plantations as Nigeria.
“All we will see in Nigeria and Africa will be shortages by the exclusion of the quantities that should have come from Indonesia,” he said. He added that demand which has already outstripped supply will even outpace it the more.
Room for improvement
It is noteworthy that despite increased production, supply has failed to meet the demand for palm oil among Nigeria’s 200million inhabitants. And, according to Emeka-Onyenacho, smaller producers are missing out on government’s largesse.
“A lot of the money allocated by the central bank goes into the big companies because they are much more viable investments than small scale farmers,” he says. The result is a “fragmented market”, in which the two largest producers, Presco and Okomu, and other established companies are able to invest in more efficient methods, while small farmers struggle to access funds.
Even so, new entrants have been drawn in. One such company is Releaf, which sources palm nuts from smallholders and extracts palm kernel oil at its factory in the southeastern state of Akwa Ibom. It sells the oil to consumer goods companies such as PZ Cussons, which use it in food products and soap.
“Nigeria has about twice the demand for vegetable oil than it has supply, and the government has made a lot of innovative policy choices,” says Ikenna Nzewi, chief executive of Releaf, which evolved from a non-profit set up in 2015.
Some producers are also signing up to certification schemes, such as the one run by the Roundtable on Sustainable Palm Oil. Financial Times of London quoted Chuka Mordi, chief executive of agriculture business, Ellah Lakes as having said that the scheme offers a “credible way to show that what you are producing is responsible.”
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