Palm Oil Importation: A Strategic Stabiliser for Palm Oil Industry in Nigeria

Posted by Adaora Anozie

On January 6, 2015

As early as 1901, Nigeria was producing all palm oil sold in the world market and it was a dominant source of foreign exchange earnings.

Up until the 60s, Nigeria was the world’s largest producer of palm oil accounting for 43 percent of global palm oil production. But due to over-reliance on traditional production methods, excessive tapping of palm tree for palm wine, break up attempt in 1967-70 which was actually fought in areas where palm activities were predominant, Nigeria’s ability to meet up with the global rise in demand was curtailed.

Though production was increasing during that period, it was not increased at a rate that could meet up with rising global demand and consumption.

Historically, Nigeria is largely an agrarian society despite lack of modern farm implements which undermined the potential for large-scale production. Agriculture was the mainstay of the economy during the pre-colonial and the colonial period.

Nigeria emerged in the first decade of her independence as a leading exporter of many major agricultural commodities. Nigeria was a leading exporter of palm kernel, and largest producer and exporter of palm oil. It was also the second largest producer of cocoa in the world.  During that time, smallholder farmers collectively produced 90 percent of the food needs and 70 percent of Nigeria’s export earnings — a dominant share of the country’s GDP.

However, in 1956 crude oil was discovered in commercial quantity. This paved the way for the gradual neglect of agriculture by successive governments and the civil war which began in 1967 and lasted till 1970 did a major damage to the palm oil sector of the economy. The war predominantly took place in Eastern Nigeria which was the seat of oil palm plantations. The oil palm belt includes the states of Abia, Anambra, Bayelsa, Akwa-Ibom, Cross River, Delta, Eboniyi, Ekiti, Enugu, Ondo, Ogun, Osun, Oyo, Imo and Rivers.

In the 70s, Crude oil became the dominant source of revenue while agricultural production nose-dived considerably. From over 60 percent in the late 60s, the contribution of agriculture to the GDP plummeted to 22.2 percent in the 80s. Recent data put the contribution of agriculture to the country GDP at 42 percent. Many farmers engage in farming at subsistence level.

The first ban on importation of vegetable oil was implemented in1986.  In 1995, there was replacement of existing ban with high import duty by the federal government.

In year 2002 – 2008 federal government again imposed a total ban on import of vegetable oil.

This in turn has contributed to food insufficiency and subsequently led to importation of food to supplement local production. Nigeria has also lost its place in agricultural exports even in area it once dominated. In palm oil supply, Nigeria now produces a meagre 1.7 percent 34 of total world production which is inadequate for local consumption which is put at about 2.7 percent. Malaysia, a country Nigeria gave palm oil seedlings to, has overtaken Nigeria as one of the largest producers and leading exporters of palm oil in the world. Malaysia and Indonesia produce 83 percent of total world production of palm oil.

The war destroyed almost all of the oil palm plantations and dispersed the small land holders of oil palm, who till date, accounts for 80.0 per cent of the oil palm produced locally. The war though ended but left behind a legacy of crippled oil palm industry, which has remained in a state of comatose till date.

Today, from being the largest producer of oil palm, Nigeria is now a net importer of palm oil. According to IndexMundi, a data portal, the domestic palm oil produced totaled 930,000 MT in 2014.

The growth in oil palm has stagnated at 930,000 MT since 2013. The consumption of palm oil in Nigeria amounts to 2.0 million MT per annum.

The official figures states that the shortage in oil palm industry is estimated to be around 1,070,000 MT annually. This poses a very precarious situation for the manufacturing sector that depends largely on CPO as a major source of raw material. If this shortage is not filled with importation of high quality food grade palm oil, the economy will lose further investment in the manufacturing sector as companies would shot down and relocate their business outside the country, like it happened in the past.

However, analysts estimate that the major importers of crude palm oil (CPO); Nigeria and Benin Republic, imports 450,000MT and 470,000MT of palm oil per annum, respectively. Sources claim that most of Benin Republic’s CPO imports find their way into Nigeria through informal channels as Benin exports close to 390,000 MT of palm oil annually. Thus, actual shortage of CPO could be as high as 940,000 MT if the exports from Benin Republic are taken into consideration.

It is pertinent to note that majority of companies operating in Nigeria import from the ECOWAS states at zero duty. The level of production in the ECOWAS states is not high enough to support the quantity CPO imported in those state, but rather, some companies are importing through the ECOWAS states and bringing it in through informal channels without paying any duty to government. More than 50percent of total import in Nigeria is from ECOWAS at zero duty. These are areas that the government must turn its search light on to ensure all imported CPO pass through the right channel and the payment of the 35percent duty is paid to increase government revenue.

Majority of palm oil is consumed by food industry and the remaining  is used by the non-food industry. Foods like seasoning cubes, vegetable oil, biscuits, chips, margarines, shortenings, cereals, baked stuff, washing detergents and even cosmetics thrive on palm oil. Saddened by unavailability of sufficient oil palm in the Nigerian market, some industries have proactively announced strategic alliances to invest in oil palm plantations.

Nigeria today produces only 1.7 per cent of the world’s consumption of palm oil which is insufficient to meet its domestic consumption which stands at 2.7 per cent. Thus, the question of net exports doesn’t arise; however, paradoxically, about 20.0 per cent of the oil palm produced domestically is considered of high quality and clears all the seventeen tests for being an exportable commodity.

Of course, the federal government is striving to sustain the crude palm oil industry of the country but the country need to have a stable economy and survival in the palm oil industry.  In 2006, the federal government put a ban on the importation of vegetable and palm oil into the country to encourage the plantation of palm trees and oil refineries in other to boost the production of palm oil.

The ban had an effect; Local production was unable to meet the quantity as well as quality requirements of the industry leading to scarcity of raw materials and inflation, Large estate in the palm oil plantations and output in Nigeria which is the only category producing palm oil used by the food industry  produced 80,000tons annually which is only 10 per cent of local production and the overall domestic oil production was 1.35mn tones ,the consumption demand was 2.25mn tones resulting in a shortfall of 900,000 tones.

Also the economy felt the impact as there was inadequate supply of palm oil, desperate food producers’ use non quality palm oil thereby jeopardising public health and safety, the future industrial growth was threatened because palm oil was and is one of the widely used raw material and migration of industries and investments in Nigeria to other neighbouring countries.

Due to the resultant effect of the shortfall, over 11 companies were out of production in 2009 due to lack of palm oil input.

So as the low production and high demand for the product both domestic and industrial needs continue to generate much agitation, importation is inevitable for the sustenance of the little pride of the country’s industrial image and in 2009 the government removed the ban with 35 per cent tariff on the importation of palm oil into Nigeria.

For Nigeria to meet the shortfall in local usage of crude palm oil and be self-sufficient, Nigeria needs a total plantation of 300, 000 hectares of land. This no doubt is huge and requires the support of government through its Ministry of Agriculture by providing suitable and adequate land for willing investors to invest in large estate plantations in the country.

The road to being self-sufficient is a long one as a whopping $10billion will be required and a minimum of 20 years of palm tree planting at a very large scaleand after 20 years demand will be much more than this, so investment needed for plantation need to be much higher and at the same time government need to allocate that much land for plantation which we are not seeing happening.

It is important for Nigerian Government to realize that local prices are much higher because of high reliance on local plantation. These high prices are passed on to the consumer and are being cheated. And for now, importation of palm oil serves, as the best alternative to the low quantity produced in the country pending the development of large estate plantations………………

Samuel Adetola


culled from ThisDayLive