Revisiting Nigeria’s Palm Oil Industry

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Brief History

From the 1950s till mid-1960s, Nigeria remained the largest producer of crude palm oil (CPO) worldwide with a market share of approximately 43.0% and supplying 645,000 MT of palm oil annually across the globe. However, the civil war that began in 1967 deteriorated the country’s palm oil production. The war predominantly took place in eastern Nigeria, destroying most of the palm oil plantations in the country and dispersed the small landholders of palm oil, who till date account for 80.0% of the palm oil produced locally.

Current Situation

Today, Nigeria has declined from being the largest producer of palm oil to becoming a net importer. According to Index Mundi, the domestic palm oil produced totaled 850,000 MT in 2012, while consumption is about 1 million MT per annum. As a result, there is an annual shortage of about 150,000 MT. Although the production of oil palm has increased since the 1960s, the shortage has resulted from the ever-increasing population and demand for palm oil. The attempt to bridge the supply gap of locally produced palm oil will create opportunities for investment in this sector and reduce importation.

In Nigeria, 90.0% of palm oil is consumed by food industry and the remaining 10.0% is used by the non-food industry. Consumables like instant noodles, vegetable oil, margarines, cereals, washing detergents and even cosmetics thrive on palm oil. Instant noodles alone consume 72,000 MT of imported palm oil and there is not enough domestic production to meet the demand. Frustrated by unavailability of sufficient palm oil in the Nigerian market, some noodle-makers have proactively announced strategic alliances to invest in palm oil plantations.

Global Outlook

On a global scale, the palm oil industry is valued at approximately $50 billion. Presently, the global demand for palm oil consolidates to 49.5 million tons. The production of CPO is expected to grow by 8% – 10% in 2013 achieving a total volume of approximately 58 million MT. Economies like Indonesia and Malaysia that developed their palm oil industry from African palm kernel nuts, are expected to produce 30 million MT and 18.9 million MT respectively between 2013 and 2015. The global palm oil industry is expected to reach 62.5 million tons by 2015 due to the increasing demand from the food, chemical and bio-diesel industries.

The European Union (EU) requires that by the year 2020, 20% and 10% of energy and transportation fuels respectively, will be derived from renewable sources of energy. This regulation is also expected to act in favor of the palm oil industry as it serves as fuel for biomass plants. Additionally, research from the United States Department of Agriculture (USDA) states that palm oil accounts for 40.0% of the edible oil worldwide and this reinforces its dominance in the global market.

Recommendation

In bridging the supply gap and achieving the mass production of palm oil in the country, the government must create awareness for tree planting in rural communities. Farmers in these communities should also be educated on implementing best practices to help achieve optimal results during harvest season. There is also need to standardize palm oil pricing, as well as low-interest financing from banks to encourage subsistence farming. The investment in palm-oil refineries in the country will also boost production.

If the government and private sector can work hand-in-hand in reviving and sustaining the palm oil industry, numerous job opportunities will be created and Nigeria can once again become a relevant player in the global palm-oil market.

This article is an excerpt from BusinessDay’s report on The Nigerian Oil Palm Industry

Author: 234Finance

234Finance.com is an online platform that promotes African entrepreneurship. We achieve this by bridging the gap between investors and early stage startups in Africa’s emerging market.
234Finance.com is strategic for promoting entrepreneurship through the power and effective use of information.

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234Finance
234Finance.com is an online platform that promotes African entrepreneurship. We achieve this by bridging the gap between investors and early stage startups in Africa’s emerging market. 234Finance.com is strategic for promoting entrepreneurship through the power and effective use of information.

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