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Revamping oil palm sector through effective backward integration policy

20 January 2015   |   11:00 pm
The truism that Malaysia owes its success in oil palm sector to the West African region, especially Nigeria where the seeds for the commodity were obtained, has not been disputed. However, the need for Nigeria to reclaim its dominant position in the industry requires committed investments in the sector as well as government’s political will…

Oilpalm-The truism that Malaysia owes its success in oil palm sector to the West African region, especially Nigeria where the seeds for the commodity were obtained, has not been disputed. However, the need for Nigeria to reclaim its dominant position in the industry requires committed investments in the sector as well as government’s political will through sustained implementation of the backward integration plan. With many investors making inroads into the oil palm sector, it has become necessary for government to appraise the backward integration plan to facilitate a large-scale production that would bridge the demand-supply gap of the commodity. FEMI ADEKOYA writes.

HAVING lost its global competitiveness as the world’s largest producer of palm oil, Nigeria has begun to make efforts towards reclaiming its position through a backward integration exercise to drive the production of Crude Palm Oil.

    With the global economy contracting amid fluctuations in the global oil markets, the need for developing economies like Nigeria to improve their non-oil export and sectors has become necessary more than ever, as part of measure to sustain their economy.

   Already, Nigeria, with a teeming population continues to depend heavily on food imports, as the processing sector remains under-exploited due to low investments in value-chain processes of many commodities produced in the country.

   For the crude oil palm sector, official figures show an estimated supply gap of about 1.7 million metric tonnes yearly, therefore posing a very precarious situation for the manufacturing sector that depends largely on CPO as a major source of raw material. 

   Indeed, stakeholders blamed past failures of previous initiatives in the sector on the dearth of improved oil palm nuts/seedlings, lack of fertiliser, stifling government control and low adherence to good field maintenance practices, while they observed that in operating like a business or investment that must generate returns, farmers and other investors in plantation development must take advantage of available technologies to transform their field operations and performance for higher profitability.  

    With new entrants initiating investments in the sector, it is believed that the supply gap may soon be addressed if the federal government remains committed to its backward integration plan.

    For instance, DUFIL Prima Foods Plc, a key player in the Nigeria Culinary industry has embarked on strategic backward integration to ensure 100 per cent local content in most of the products being produced by the company.

  This move includes the establishment of a seasoning plant, flourmills, an oil refinery and a palm tree plantation under the Edo State Government Agribusiness revolution scheme. 

   In its effort to boost the local production of Palm Oil, the company has also acquired and signed a memorandum of understanding with the Edo State government for 60,000hectares of land for cultivation of Palm trees, which will help in boosting local production for palm oil, thereby bridging the supply gap of palm oil within the country. 

    In a chat with The Guardian, Edo State Commissioner ‎for Agriculture and Natural Resources, Abdul Oroh explained that the state is driving an import substitution agenda by encouraging investors to increase their stake in the agric sector.

   He explained: “Nigeria has a huge population and a market. We import huge volume of rice. From China to the United States and to the whole world, their primary food is rice, so is Nigeria. Although we eat a lot of cassava-based foods too, virtually everybody eats rice and we spend a lot of money either importing it or getting it smuggled into our country.

   “Today as we speak, a tonne of crude palm oil is $700 and the value of crude oil is about $46. For us, we are not panicking in Edo State because we are not dependent on oil. We want to develop agriculture and this is an opportunity for us.

   “Already, we have a request from Dulfil Prima foods industries for 60,000 hectares of land to drive their oil palm investments and other products. We have the land reserved and we are on the verge of surveying the land and also to do crop and demographic enumeration. What we are doing now is community relations because our policy is based on the principle free and informed consent of the communities. We want to achieve this policy through the discussions with them because we want them to be part owners of the process and we do not want a repeat of what happened in the Niger Delta where communities fight with the investors. That is already being achieved, as the discussion has been ongoing for the past two years. 

   “As for the oil palm industry, like I said, if you plant cassava today, in eight months you can harvest it, but for you to get the maximum result, within 24 hours, you must take it to the mill otherwise it will go bad.  Oil palm is different because it takes about 18 months. Clearly, the market is big, open and wide for investments. We do not need to be importing vegetable oil from anywhere, people should import from Nigeria. We need to make Nigerian oil the benchmark for the world market”.

   Speaking on the backward integration plan in the sector, he said: “To have a backward integration policy is not a bad policy. I just told you the price of crude palm oil but I have not told you about palm kernel oil, which is almost twice the amount of crude oil palm and not to talk of the vegetable oil. There is so much advantage in putting a lot of investment in agriculture. If we invest in oil palm production or rice, cocoa and even cassava because of the value chain, the gain is immense. We have the advantage of the European Union (EU) market and we have an ambition to grow more than we are today.

  “With the proposed investments in the agric sector of the state, we are looking at about $600 million from Dufil Prima Foods once the deal is finalized”.

   With a slow-paced growth being experienced in the sector, it is expected that the penetration of the industry by new entrants would further drive the growth of the sector.

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

  Investors believe the beneficiaries of government incentives and credit facilities should be small farmers and co-operatives of farmers adding that the production capacity of the existing plantations should be augmented through the use of technology and better fertilizers.

   Considering the multi-faceted economic significance of oil palm, the minister of agriculture and rural development, Akinwunmi Adesina, recently said that oil palm value chain activities were capable of adding 20 million metric tons of food to national domestic supply this year, and generating 3.5 million jobs within the various commodities value chains if well pursued.