Why Nigeria should reclaim its position in Palm Oil Production

By Mathew Dadiya

Humans used of oil palms (Elaeis guineensis) dated as far back as 5,000 years. In the late 1800s, archaeologists discovered a substance that they concluded was originally palm oil in a tomb at Abydos dating back to 3,000 BCE. It is believed that traders brought oil palm to Egypt. Palm oil has long been recognized in West and Central African countries as a cooking oil; and European merchants trading with West Africa occasionally purchased palm oil for use as a cooking oil in Europe.

Palm oil is of strategic importance as it is used in the production of more than half of the products sold in supermarkets globally. Like palm kernel oil, red palm oil contains around 50% medium chain fatty acids, but it also contains the following nutrients: carotenoids, such as alpha-carotene, beta-carotene and lycopene, sterols, and vitamin E.

Global production of palm oil has increased rapidly since the 1990s, with plantations in Indonesia and Malaysia supplying around 85 percent of the global trade.

According to the Hamburg-based Oil World trade journal, in 2008 global production of oils and fats stood at 160 million tonnes. Palm oil and palm kernel oil were jointly the largest contributor, accounting for 48 million tonnes, or 30% of the total output. Soybean oil came in second with 37 million tonnes (23%).

About 38% of the oils and fats produced in the world were shipped across oceans. Of the 60 million tonnes of oils and fats exported around the world, palm oil and palm kernel oil made up close to 60%; Malaysia, dominated the palm oil trade with 45% of the market share.

Nigeria, with a population of over 200 million people, is the largest consumer of palm oil in Africa. It consumed approximately three million metric tons of fats and oils in 2018, with palm oil accounting for 44.7% or 1.34 million metric tons In the same period, the nation’s palm oil production stood at 1.02 million MT resulting to supply shortfall of 0.32 million MT (excluding possible impact of palm oil exports).

In the early 1960s, Nigeria was the world’s largest palm oil producer with global market share of 43%. Malaysia got its oil palm seedlings from Nigeria in the 50s, but today Malaysia is the second largest producer and biggest exporter of palm in the world, while Nigeria is the 5th largest producer with less than 2% of total global market production of 74.08 million MT.

In 1966, Malaysia and Indonesia surpassed Nigeria as the world’s largest palm oil producers. Since then, both countries combined to produce approximately 80% of total global output, with Indonesia alone responsible for over half i.e. 53.3% of global output.

In spite the fact Nigeria being the largest producer of palm oil in Africa, surprisingly, Benin Republic was the largest exporter of the commodity without manageable oil palm plantation.

According to the Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, if Nigeria had maintained its market dominance in the palm oil industry, the country would have been earning approximately $20 billion annually from cultivation and processing of palm oil as at today.

In a renewed effort to make Aftica’s biggest economy regains its dominance in the palm oil sector, the central bank in line with the administration of President Muhammadu Buhari’s policy on agriculture, launched a series of intervention schemes which include the Anchor Borrowers programme aimed at promoting investment in oil palm plantation and enhanced palm oil production in the country.

The scheme is designed to provide single-digit interest rate on loans to farmers through the Deposit Money Banks and other participating Financial Institutions.
For the palm oil sector, the interest on the loan facility is at 9% per annum. In 2019, the Federal Government of Nigeria also mandated the central bank to support corporate bodies and individuals that are engaged in production of ten specified agricultural commodities including palm palm oil.

Oil Palm Production

Rising environmental concerns may hamper the growth of the palm oil market in the forecast period of 2020 to 2027.

The use of palm oil in food products has attracted the concern of environmental groups; the high oil yield of the trees has encouraged wider cultivation, leading to the clearing of forests in parts of Indonesia to make space for oil-palm monoculture. This has resulted in significant acreage losses of the natural habitat of the three surviving species of orangutan. One species in particular, the Sumatran oragutan has been listed as critical endangered, a development that angered environmentalists including certification agencies like Friendsofthe earth and others and have refused to certified most of the palm oil from Asia.

Although, Nigeria has continued to maintain environmental friendly approach to the development of its oil palm plantaions.

Top producers of palm oil in Nigeria

Nigerian States that are considered to be the largest producers of palm oil are Akwa-Ibom, Abia, Rivers, Edo, Imo, Ondo, Bayelsa, Cross River and Delta.

Palm oil Usage

Palm oil has numerous usage globally which include: Edible Oil, Bio-Diesel, Lubricants, Cosmetics, and other applications – household Cooking, Food & Beverages, Oleo Chemicals, Personal Care, Animal Feed, Bio-fuel.

Biomass and biofuels

Palm oil is used to produce both methyl ester and hydrodeoxygenated biodiesel. Palm oil methyl ester is created through a process called trans esterification. Palm oil biodiesel is often blended with other fuels to create palm oil biodiesel blends.

Significant amounts of palm oil exports to Europe are converted to biodiesel (as of early 2018: Indonesia: 40%, Malaysia 30%). In 2014, almost half of all the palm oil in Europe was burnt as car and truck fuel. As of 2018, one-half of Europe’s palm oil imports were used for biodiesel. Use of palm oil as biodiesel generates three times the carbon emissions as using fossil fuel, for example, “biodiesel made from Indonesian palm oil makes the global carbon problem worse, not better, ” experts said.
The organic waste matter that is produced when processing oil palm, including oil palm shells and oil palm fruit bunches, can also be used to produce energy. This waste material can be converted into pellets that can be used as a biofuel. Also, palm oil that has been used to fry foods can be converted into methyl esters for biodiesel. The used cooking oil is chemically treated to create a biodiesel similar to petroleum diesel.

Global Palm Oil Market Scope and Market Size

Oil palm produce is a basic source of income for many farmers in South East Asia, Central and West Africa, and Central America. Palm oil market is segmented on the basis of type, origin, usage and application. The growth amongst the different segments helps in attaining the knowledge related to the different growth factors expected to be prevalent throughout the market and formulate different strategies to help identify core application areas and the difference in your target markets.

Outlook for palm oil prices was dampened in 2019 with World Bank forecasting downward trend in the commodity price from US$639/MT in 2018 to US$623/MT. Prices have picked up in 2020 despite the disruption caused by the Covid-19 pandemic and it is anticipated to continue to grow and reach US$900 by 2026.

According to Food and Agriculture Organization (FAO) data showed production increased by over 400% between 1994 and 2004, to over 8.7 million metric tonnes. Indonesia is the world’s largest producer of palm oil, surpassing Malaysia in 2006, producing more than 20.9 million tonnes, a number that has since 2016 output, risen to over 34.5 million tons and it expects to double production by the end of 2030.

In Nogeroa a bottle of palm oil which is 75cl or 1 litres, price falls between N200 to N450. A volume of 20 litres of palm oil is sold at an estimated price of N8,000 or above, depending on the place while 25 litres of Palm Oil costs about N9,000 to N15,000.

However, illegal cross-border inflows of CPO and other by-products in Nigeria have resulted in drop in prices with adverse impact on local producers and refiners.

Latest reports from Data Bridge Market Research on palm oil market, showed that Palm oil market will reach an estimated valuation of $148.47 billion by 2027 from $82.63 billion in 2019, while registering this growth at a rate of 7.60% for the forecast period of 2020 to 2027.

Reactions from local producers

The National Palm Produce Association of Nigeria (NPPAN) revealed that importation and illegal smuggling of palm oil are biting tolling the on local producers, regretting that they lose about $500 million annually due to this problem.

The Vice President of the Nigeria Agribusiness Group (NAGB), Mr Emmanuel Ijewere, lamented that some big companies like PZ Cussons Plc and Unilever Nigeria Plc continue to import uncertified palm oil into Nigeria despite the presence of leading producers such as Okomu Oil Palm Plc and Presco Plc in the country; a situation he said is necessitated by the inability of local oil palm producers to meet the demands of manufacturing companies.

Dr. Graham Hefer, Managing Director of Okomu Oil Palm Company Plc, said about 103,000 tons of palm oil products were illegally imported into the country from Malaysia in the first quarter of 2019; constituting about four times the size of palm oil products that were illegally imported in 2018, despite being among the list of 41 items prohibited by the Central Bank of Nigeria from importation.
This illegal importation of the commodity has continued to threaten the growth of the sector, he lamented.

Johnbosco Agbakwuru, an oil palm plantation owner in Imo State, Nigeria, said it’s a profitable business that require a lot of support. He appealed to the Nigerian government to make fertilzers affordable for oil palm farmers and provide high yield seedlings that will enable them to compete favourably with their Asians counterparts in the palm oil sector.

Major palm oil players in the sector have called on the Nigerian government to provide more financial, technological support and other assistance to their members who have invested billions of U.S. dollar into the industry to enable them meet the high demand for the Nigetian palm oil from both local and international.
Whilst it costs billions of dollars to establishing a petroleum refinery palm oil refineriy costs as little as $150,000 that can be replicated across the oil palm belt of Nigeria.

There is need for the leading companies in Nigetia’s palm oil sector: Okomu Oil Palm Company Plc; PRESCO PLC; Rimco Nigeria Limited; Siat Nigeria Ltd; EFB Industries Limited; Damian Oil Palm Company amongst other small players and local scale producers to get certified by a leading global sustainable body like Friendoftheearth to make the Nigeria’s palm oil get global acceptance.

Perhaps, the growing consumer awareness concerning positive health benefits of palm oil will help impact the market growth in the forecast period of 2020 to 2027. The increasing demand for vegetable oil, rising concerns regarding the large-scale deforestation, cost-effective and low in trans-fats are some of the factors expected to enhance the growth of the market. On the other hand, growing consumption of palm oil in the manufacturing process and rising usage of palm oil as a substitute for trans-fat in processed foods will further cater ample opportunities that will fuel the growth of palm oil market in the above mentioned forecast period.

In 2016, the global production of palm oil was estimated at 62.6 million tonnes, 2.7 million tonnes more than in 2015. The palm oil production value was estimated at $US39.3 billion in 2016, an increase of $US2.4 billion (or +7%) against the production figure recorded in the previous year. Between 1962 and 1982 global exports of palm oil increased from around half a million to 2.4 million tonnes annually and in 2008 world production of palm oil and palm kernel oil amounted to 48 million tonnes. According to FAO forecasts by 2020 the global demand for palm oil will double, and triple by 2050.

Profitability in Oil Palm farming

Everything about the tree is money; a mature palm fruits produces 5 tons of red palm oil annually for a hectare of farm. But for supergene it produces 7 tonnes and above. 25 tons of palm nuts will produce 10 tons of palm oil, 13.5 tons of cake and 5 tons of sledge. The oil extraction rate from a bunch varies from 17 to 27% for palm oil, and from 4 to 10% for palm kernels.
One source reported that humans consumed an average 17 pounds (7.7 kg) of palm oil per person in 2015. Many processed foods either contain palm oil or various ingredients made from it.

It is the shared responsibility of all those involved to improve certification systems, to drive uptake of sustainable products, and to bring into the fold the many actors who still operate without any commitments to sustainability; and only through broader, constructive collaboration can sustainable palm oil succeed.

Though, there have been concern over displacement and disruption of human and animal populations due to palm oil cultivation, but Bray urged Africans to sustain the friendly approach they have adopted in oil palm plantation which does not involved deforestation.

Palm oil majors have in the past few years adopted policies that promise no deforestation, no peat development, and no exploitation. Friend of the Earth has been appealing to people around the world to support companies who are dedicated to using only Certified Sustainable Palm Oil (CSPO) and advised to only use palm oil that has been certified according to the criteria of the Friend of the Earth.

Beginning in 2008, palm oil that meets RSPO introduced standards has been designated “certified sustainable palm oil” (CSPO). Within two years of implementation, CSPO-designated palm oil comprised 7 percent of the global palm oil market. As of October 2012, 12 percent of palm oil has been certified by the RSPO. However, in the first year of CSPO certification only 30 percent of sustainable oil was marketed as CSPO.

While uncertainties surround the future of crude oil globally, palm oil has seen a steady rise in price hence the need for Nigeria and other palm oil producing countries in African to increase their production capacity, adhere to sustainable best standards and certifications especially Friend of the Earth’s Certiication so as to take advantage of the European market.

Paolo Bray, Director of W.S.O/Friend of the Earth, emphasizes on the need for Nigeria to take advantage of the booming palm oil market and increase its production in line with global standard and Friend of the Earth Certification policy.
He explained that Friend of the Earth promotes a model of sustainable breeding based on respect for animals and nature with the aim of increasing over time the level of symbiosis with the environment and the territory.

According to Bray, Friend of the Earth’s Certification scheme for sustainable breeding was developed according to the SAFA (Sustainability Assessment of Food and Agriculture systems) guidelines set by the FAO (United Nations Food and Agriculture Organization) and is based on 6 basic principles.

Nigeria being the fifth largest producer of palm oil in the world, needs to take the issue of sustainability in the palm oil industry very seriously and make progress in the production of sustainable palm oil in the country.
The country’s large and rapidly growing population will continue to be a major driver of demand and so the implementation of sustainable practices in the industry is important. In recent years, there has been increase in demand for palm oil in the country, with 90% of the demand coming from food related sources like household consumption and industrial use for food processing (e.g. noodles, margarines and biscuits).

Moreover, there is need for the development and execution of a comprehensive palm oil policy that will drive the growth and development of the sector going forward. In addition, there is need for significant investment in research and development activities.

Written by Mathew Dadiya with support from Friend of the Earth