Palm oil makers in aggressive expansion to close N152bn supply gap - BUSINESSDAY
…but smuggling hurts industry
Nigeria has a demand-supply gap of 800,000 metric tonnes in the palm oil market, which translates to N152.3 billion ($423.3 million) using Wednesday’s price of N190,440 ($529) per tonne.
This opportunity is forcing the likes of Okomu, PZ Wilmar, Presco and other palm oil millers to expand plantations and acquire new facilities.
PZ Wilmar has acquired a palm oil mill (POM) and kernel crushing plant (KCP), while investing around N20 billion in an oil palm refinery in Lagos.
With approximately $150 million, PZ Wilmar, a subsidiary of PZ Cussons, has bought 26,500 hectares of palm oil plantations in Cross River State.
About 5,549 hectares (ha) of oil palm plantation are located in Calaro Estate, while 2,369 ha are in an area known as Calaro Extension.
The firm also acquired Ibiae plantations with 5,595 ha, Ibad plantations in Akampa with 7,805 ha, Kwa Falls in Akampa Akpabuyo with 2,014 ha, and Oban plantations, also in Akampa, with 2,986 ha.
“We are determined to continue with these investments and looking for opportunities to expand our plantations in the state. We have also invested around N20 billion in an oil palm refinery in Lagos,” Santosh Pillai, managing director, PZ Wilmar, told BusinessDay.
Okomu, another big investor in the industry, is planting 11,400 hectares at a new Extension 2 Plantation in Ovia North East Local Government Area in Edo State.
The palm oil maker acquired new mills, being built at a cost of $50 million.
“Currently, the company operates two 30-metric-tonnes-per-hour mills and has commenced the building of another two 30-metric-tonnes-per-hour mills, which will be commissioned from 2020,” Gbenga Oyebode, chairman of Okomu Oil Company plc, said.
The miller plans to move production from 40,000 tonnes to 80,000 tonnes with its current investment, said Graham Hefer, managing director of the company.
Presco plc is another major player that is plugging the huge gap in the industry.
Located in Edo State, the firm has total land bank of 40,000 hectares of which planted areas are 20,136 hectares of oil palm and 138 hectares for rubber.
Presco’s investment is valued at N75 billion. Its capacity is 63 percent in the peak season and 24 percent in the lean season.
The firm’s estimated production for 2018 was 47,000 MT of CPO.
“Included in our long-term business plan is capital expenditure (capex) investment of N46 billion over the five-year period of 2018-2022 in plantations development, processing facilities, energy infrastructure and other supporting machinery, equipment and infrastructure,” Felix Nwabuko, managing director of Presco, told BusinessDay.
Nigeria produces 900,000 metric tonnes of palm oil, but national demand stands at 1.7 to 2.1 million tonnes. The country had 45 percent share of the global industry in 1960 but now its market share has fallen to only 1.5 percent. If Nigeria had maintained its 45 percent share today, it would have been earning $14 billion annually from palm oil.
Experts attribute loss of market traction in palm oil to crude oil curse of 1970s, which made most flagship non-oil export products to deteriorate.
Henry Olatujoye, national president, National Palm Produce Association of Nigeria (NIPPAN), said large and established palm oil firms need to cultivate up to 2 million hectares to plug the gap.
Sugarcane, for instance, contributes $43.8 billion to Brazil’s gross domestic product (GDP) – equivalent to almost 2 percent of the entire Brazilian economy.
In 2016-2017, the garment industry generated $28.14 billion for Bangladesh, which was 80.7 percent of the country’s total export earnings and 12.36 percent of the GDP.
As the European Union takes measures to restrict palm oil from Malaysia and Indonesia from entering Europe due to environmental concerns, the two giants are looking to Nigeria’s market.
Traders are smuggling their oil into the country through Benin Republic and Kano.
“Visit any supermarket or traditional market in Nigeria and you see that plenty of imported vegetable oil, which is banned in the country, is easily available,” Pillai of PZ Wilmar said. “The current policies are only aiding cross-border trade and smuggling. The leading domestic refineries in Nigeria are facing a crisis and many in the country are not operational.”
In 2018, the annual profit of Okomu Oil Palm Company plc fell 8.72 percent from N9.3 billion to N8.5 billion in 2017, while its profit before tax declined to N10.3 billion from N11.1 billion.
Revenue marginally dropped to N20.258 billion from N20.262 billion.
Presco’s margins are also expected to drop.