August means one thing for my family, Iri Ji, the celebration of the new yam harvest. On loop are hazy childhood memories of sitting in my village courtyard with my grandmother and her friends removing palm fruits from their porcupine-like bunches.
Those palm fruits would eventually end up on our table as a slow-moving red glop of palm oil on steaming hot yam. The fruits could also end up roasting in a wobbly frying pan over firewood preparing to be an afternoon snack. Watching them crackle, I used to wonder where those wild red palm fruits came from. Now I know, my village Ohanze is paved with mangroves of palms as wild and thick as the expectations for a local industry long crushed by globalisation.
The oil palm fruit is one you literally can’t live without. Today, three billion people in 150 countries use products from oil palms, and Nigeria is trying to cash in on it, again. Whether it’s the indomie you had for dinner last night or the lipstick you’re wearing, manufacturers use the oil palm in around 50% of consumer products that people buy daily.
At this point, it's worth distinguishing between palm oil and palm kernel oil. Palm oil is typically used for edible purposes such as cooking and frying, as well as an ingredient in other food formulations. While palm kernel oil is generally used for non-edible purposes like soaps and cosmetics. Alternatively, the difference can also be understood in terms of colour; palm oil is red, palm kernel oil is golden.
The palm fruit produces palm oil and palm kernel oil. Palm oil, also referred to as CPO, comes from the outer fleshier part of the fruit while cracking the inner seed provides the palm kernel oil.
Making agriculture great again: lessons from Indonesia
The oil palm specifically is often bandied as the “one that got away”. Nigeria was once the largest exporter of palm oil in the world; now, it is a net importer. But since 1999 we have been trying to MAGA–‘make agriculture great again’.
The motivation seems noble enough: to lift people out of poverty. After all, it is difficult to have a conversation about lifting millions out of poverty without talking about the industry that employs 50% of Nigerians.
To see what is possible in terms of lifting incomes through the palm oil industry, we only have to look to Indonesia which produces more than half of the world's oil palm.
The country’s average yearly income of an oil palm plantation is up to $2,500 per hectare, compared to $250 for a rice plantation. The industry also employs over 1.7 million Indonesians.
Given these potentials of oil palms, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele says Nigeria’s target is to become the third-largest producer of oil palms in the world (today it is the 5th largest producer). To put that in perspective, the third-largest producer of oil palms in the world, produces 2.8 million metric tonnes, while Nigeria produces barely over a million.
To achieve the record growth that it did, Indonesia focused on increasing acreage of plantations. In 1999, the total area of oil palm plantation was approximately 3.9 million hectares, and by 2009 it had grown to a dizzying 7.3 million hectares. Today that number stands at 12.8 million hectares. Meanwhile, the estimate for oil palm plantations in Nigeria ranges from 169,000 to 360,000 hectares and 1.6 million hectares for smallholder controlled oil palms.
The Indonesian government incentivised the expansion of oil palm during the 1980s by financing palm oil companies with state loans, and—impressively—making land free. This allowed the companies to clear large amounts of forest for planting, and reduce the amount of capital required for the oil palm business. In return, the government required that the companies develop an equal area for smallholder plantations.
Land acquisition is an important part of ramping up oil palm production, alongside other issues like high yield seedlings. Sadly, Nigeria has neither the plans to increase acreage nor the conditions to do so.
However, to fully optimise available land for oil palm production, the federal government, through its appendages like the CBN, is armed with loans, bans and border closures.
The FG’s approach is useful but, for the most part, not sufficient. For instance, the 35% import tariff on Crude Palm Oil and ban on access to forex are to discourage palm oil importation. However, Emefiele's policy to ban importers from accessing forex at the CBN rate did not really deter importers. “When I worked for one of the largest global merchant firms in the world, I was responsible for importing palm oil into the country. We tried to invest $40 to $50 million in Nigeria, but the government agencies including the CBN was not supportive, hence we invested in Cote d'Ivoire and depended on imports [from Cote d'Ivoire to Nigeria]," says Deji Rotimi, agribusiness consultant at Hills Harvest, an agricultural value chain company.
Rotimi was describing what it may look like to take advantage of the ECOWAS Trade Liberalisation Scheme (ETLS). The ETLS has a goal of deepening free trade in the region and stipulates a token of 0.5% tax on goods manufactured in any ECOWAS country.
So Rotimi’s business could legally certify their goods as originating from Cote D’Ivoire, import them into Nigeria without being bogged down by tariffs. Clearly, the ETLS, a tool that is meant to empower businesses within ECOWAS, especially Nigerian businesses, could be exploited for higher gains.
Still, these government tariffs and other restrictions protect Nigerian oil palm producers to some extent. The global oil palm oversupply can’t easily saturate high consumption markets (like Nigeria) because of these policies. So where Nigerian oil palm producers could have been experiencing lower prices as a result of excess supply, they are enjoying a propped up price. Data in 2017 showed the price of palm oil was ₦718,000/tonne ($2,354) in Nigeria when the global average was $748.
While these policies encourage members of the value chain, they do not drive the expansion of oil palm cultivation.
Dapo Awofisayo, group executive director of CPL Group agrees that the government’s policies will encourage participation. He confirms that the CBN’s pressure on the banks to increase their portfolio of agricultural loans should also lead to increased activity in the [palm oil] subsector. But he has no plans of increasing his plantation.
Awofisayo oversees Ore-Irele Oil Palm Co Ltd, a subsidiary of the CPL Group. With almost 4,000 hectares of palm oil under his management. That’s five times the size of Victoria Island, but he also mentioned that his plans on expansion are geared towards the processing and not cultivation of oil palms. “Currently we only process 30% of our harvest, we want to be able to process 60% in the next few years,” Awofisayo says.
So even with a favourable price structure, meeting a demand gap and restoring the industry’s lost glory needs policies that can boost the cultivation of oil palms.
Why Nigeria’s large oil palm plantations are not expanding
Medium to large-sized plantation holdings which should be spearheading land acquisition for growing oil palms also have no such plans, in the short to medium term.
“The biggest producers Presco and Okomu are not planning acreage expansion. Why? Because it’s not economical to do so,” explains Deji Rotimi, Hills Harvest agribusiness consultant.
Stears Business independently confirmed this through an industry analyst, Abiola Gbemisola of Chapel Hill Denham who regularly speaks to management at Presco and Okomu.
Their plans largely involve increasing processing capacity because that is a more efficient way to increase output, Gbemisola disclosed. “Most of the large firms acquired plantations three to four years ago, and are currently investing in expanding processing capacity ahead of optimum yield harvest of those plantations." He added that a palm tree has a gestation period of three years and about seven years before it gets into optimum yield. “Currently, there's no efficient way to prevent the additional costs of planting, watering and essentially taking care of a tree that will not yield optimally for a seven-year period."
But Nigeria currently consumes more palm oil than it produces. The demand shortfall for palm oil is estimated at 320,000 metric tonnes. Based on the USDA estimated average yield per hectare of 0.14 tons 2.6 tons, Nigeria could need over 120,000 hectares of plantation to meet this deficit. Meanwhile, the two largest producers of palm oil in Nigeria, Presco and Okomu have 20,000 hectares and 33,000 hectares of land respectively.
Although that gap jumps out at entrepreneurs, the conditions for plugging it are tenuous. Clearing one hectare of land can cost up to $500.
Kenneth Ebillah, a small scale farmer in Abia with two hectares of land explained the huge capital investments involved in starting up, finding suitable personnel and the challenging infrastructural deficit including access to water for seedlings to grow.
He planted his seeds back in 2016 and still has three years of waiting before he can expect a sizable harvest. “It’s not a bad business, but it depends. If you want a business that can turn around money, I don’t think this is the way to go, adds Ebillah.
Typically a palm seedling is planted for three years before you see any fruit. Through those three years, the grower must work hard and spend a lot of money. Buying seedlings, fertilizers, paying workers, clearing land, the list is endless. Only in the seventh year after planting any seedlings will the palm plant mature.
Rotimi also explains why the CBN’s agriculture loans might not help with land acquisition and cultivation expansion. “Agriculture projects need 30-year loans at 3%,” he explained, dismissing the 9% “cheap” loans that the CBN often brandishes.
The United States Department of Agriculture’s farm service agency offers farmer-loans with interest rates as low as 1.25%. Of course, the US is a lower risk environment, but Nigerian businesses are trying to achieve the same objective of running a profitable business.
The CBN has several agriculture loans available such as the AGSMEIS Loan, Anchor Borrowers Programme, and the Accelerated Agricultural Development Scheme. These programs solve other problems like encouraging young people to farm but what is clear is that their rates around 9% don’t encourage growth at scale.
Agriculture loans need long tenures and low-interest rates because of the amount of time that passes before growers can reap the fruits of their labour. Meanwhile, during this time, money is spent on the upkeep of the farm.
So how do we grow?
As we saw with Awofisayo, even large scale growers can not process all of their harvest. And while there might be room to pursue expansion through oil palm processing, the issue of scaling still persists.
Ikenna Nzewi, CEO of Releaf, an ag-tech startup, says “processing yields don't do much for supply, commercial improvements would only increase output by ~2%; that 2% extra is worth it for the processor’s margins but doesn't move the needle on the market.”
There are other avenues for growing the oil palm industry, though.
“We assume that all agriculture requires scale for there to be productivity. However, developing economies in East Asia during its agricultural boom show that smallholders can outcompete plantations if properly supported with access to land, inputs, and technical assistance. This may not be the case for oil palm today, but I believe it’s feasible," Nzewi adds.
The Releaf's CEO is pointing me to the fact that in 1920s Malaysia, the yields of smallholders were far higher than those of plantations.
Similarly, agribusiness consultant Deji Rotimi thinks there is a need for a more innovative approach to improving Nigeria’s output, one that takes into account Nigeria’s unique situation. This would involve investors from the main importing countries partnering with local players over a five to ten year period.
Instead of working so hard to smuggle in their goods, foreign investors would be getting direct access to the Nigerian market without the hassle of tariffs. These investors would be able to do business in an enabling environment.
In return, they would need to partner with local investors in order to share proven technology and also access to foreign finance. Such an approach would not only create jobs across the value chain but also kick-start growth that can close Nigeria’s supply gap.
There is a popular saying “the thief is the best security.” Nigeria is where the consumer market for palm oil is. If the plan is to revive the palm oil sector, it’s not something that can be half-assed. We have to do it whole-assedly if you’ll pardon my french.
We seem to be having conversations about everything else except making it easier for interested parties to expand Nigeria’s palm plantation acreage.
Whenever we roasted palm fruits, over a firewood at Ohanze, I noticed that if I didn’t add salt and water to the pan, the fruit wouldn’t be as sweet. Conditions matter for the optimum result. If Nigeria is serious about reviving its oil palm industry, then it ought to pay attention to the factors that allow that to happen.