Over 600,000 plantation workers to lose jobs as palm producers allege sabotage
Indications have emerged that over 600,000 workers employed in over 200,000 hectares of palm plantations across the Nigeria may lose their jobs on accounts of threats posed to the industry by smuggling and increasing cost of production because of gross shortage of power supply and infrastructure.
“All indications point to large-scale smuggling of crude palm oil into this country the last few years,” said Emmanuel Ibru, Managing Director, Aden River Estate Ltd, Edo State, a member of
(POFN), explaining threats posed to investments worth millions of dollars in the oil palm sector.
He also said despite the financial programme of the Central Bank of Nigeria (CBN) and acclaimed availability of resources for industrial and agricultural loans from specialized banks, including Bank of Industry (BOI) and Bank of Agriculture (BOA), sourcing funds for agro-industrial investments in the country is perpetually a challenge to the industry players.
Proving the alleged economic sabotage, Aden River Estates boss explained to The Guardian that the Republic of Benin produces about 40,000 metric tonnes, while its demand is about 70,000 metric tonnes yearly, with a shortfall of about 30,000 tonnes.
Meanwhile, he added, the same country imported about 500,000 metric tonnes from Malaysia last year.
“So, you can imagine where the excessive 470,000 tonnes of crude palm oil goes to,” Ibru said, “and because of the ECOWAS’ free trade zone treaty, goods and services produced, not imported, within the ECOWAS are meant to be duty-free, meaning that all you have to do is pay the 10% tariff.
“Now, if you can buy palm oil produced in West Africa and bring to Africa, you do not have to pay 35% duty. The scenario I have just described is that if the countries that are producing palm oil are not producing enough, how come they are exporting to Nigeria.”
He said tonnes of imported palm oil are being smuggled or disguised as products produced in the ECOWAS, thereby short-changing the Federal Government and posing a threat to local producers by not paying the 35 per cent duty.
It is killing the backward integration investments because a metric tonne of crude palm oil that was sold for N400 last year is now sold for N250,000. This, he said, could have negative consequences.
He insisted that palm produce imported from neighbouring countries are imported from Malaysia and Indonesia, and therefore should not be treated as goods produced in ECOWAS countries.
To justify this, gave a breakdown of palm oil production in the region, saying, “Nigeria produces roughly a million tonnes of palm oil yearly but consumption is about 1.4 million tonnes. So, there is a demand gap of about 400,000 metric tonnes.
We are the largest producer in West Africa and by virtue of that, in Africa.
“Cote d’Ivoire produces about 700,000 metric tonnes and is the second largest producer, but they also have a demand shortfall, and are importing from Malaysia. Ghana also produces palm oil but not enough for their need.
“The Republic of Benin produces about 40,000 metric tonnes, while its demand is about 70,000 metric tonnes yearly, with a shortfall of about 30,000 tonnes, but the same country imported about 500,000 metric tonnes from Malaysia last year.”
He said the excessive palm imports to Benin Republic are either being smuggled into the country or being officially imported as products produced in ECOWAS’ countries, thereby evading duty and sabotaging the economy by waging price war against local investors.
“There is a 35 per cent duty on importation of palm oil into the country. If you factor the cost of that duty in, there is no way you sell imported palm oil in this country for N250,000 per tonne to make a profit unless you are not paying the duty,” Ibru said. “Our main suspicion is that people are bringing in palm oil to the Republic of Benin, and from there, smuggle it to Nigeria.
“I will not want to say the Republic of Benin is colluding with smugglers. If you are importing palm oil into their country, as long as you meet their legal requirements and pay their duty, and you smuggle it out of the country, it does not mean the government of that country is involved. So, I will not go as far as alleging conniving with smugglers. But there is no doubt that palm oil storage facilities have been built in the Republic of Benin and people are bringing it into Nigeria.”
The palm producer urged the Nigerian government ensure that anybody bringing in palm oil into the country must pay the stipulated 35 per cent duty, saying, “That is what we want. They should investigate the source of the oil, because a country that cannot produce enough for itself cannot export under the ECOWAS’s treaty. They have their record of what comes in through the ports.”
Nigeria losing in two major ways
Nigeria loses heavily in two major ways. One, the industry in Nigeria is being threatened and if the palm industry in Nigeria goes under, billions of dollars invested in it will also go down.
The backward integration and import substitution policies of the Federal Government, since 1999, have been encouraging manufacturers and industrial processors to gradually increase the percentage of the resources devoted to local cultivation and production of industrial raw materials or find alternatives to replace imported materials.
Responding though slowly, industrial players have invested in cultivation, production and processing infrastructures essential for the sustainability of the policies.
“Now, a lot of us have been investing heavily in the palm industry in the last 10 years. And all of this is threatened by smuggling,” Ibru lamented.
To develop 10,000 hectares of oil palm, about $50 million at $5,000 for each hectare is required and the gestation period is three to four years. And in that period, if the plantation is not intercropped with arable crops, no return is made.
And investigation disclosed that a large-scale 10,000-hectare plantation would be accompanied with a minimum of 30-tonne per hour mill to avoid post-harvest wastages of fresh palm fruits. The imported integrated mill would cost between $20 to $28 million depending the country of origin and specifications. Therefore, developing 10,000 hectares of oil palm, it was learnt, would gulp a minimum investment of $75 million (N27 billion).
Briefing The Guardian on the level of local investments emenating from the two policies described above, Ibru said “Okomu Oil has 20,000 hectares of palm plantation, and they have a 230-tonne per hour mill and they are bringing in another mill. So, you can imagine the amount of investment they have made.”
He added that PZ Wilmar Ltd has about 20,000 hectares of palm plantation, and a state-of-the-art vegetable oil mill in Ikorodu. Flour Mills (AgriPalm) also has started a backward integration. It also has a 1000-tonne per day refinery for vegetable oil in Ibadan.
Dufil, he said, is also into palm oil production. It has a factory with the processing capacity of 1,500 metric tonnes per day. Pressco is also there.
“If we have a shortfall of about 400,000 tonnes, if it has been brought into the country (which we do not have any complaint about), it should be imported formally and duty should be paid to the government because the Federal Government needs money too. And that is one of the major sources of income to the government.
“If people are bringing in palm oil and are not paying duty, it is an economic sabotage. They are sabotaging the government,” Aden Estate boss said.
Two, there would be job losses because the industry employs a lot of people both formally and informally.
It is estimated that over 200,000 hectares of palm tree plantations are under commercial cultivation, apart from the smallholding plantations. A minimum of three full-time farm hands employed per hectare. These over 600,000 direct workers in the 200,000 hectares could lose their job opportunities if the government allows the industry to crash.
This may escalate the security situation in the country, swell the already large labour market and the country could become a breeding ground for an army of unemployed millions living in abject poverty.
Palm oil in Nigeria is seasonal. The peak season is from January to June. From July, production drops tremendously till December. Usually, in the off-peak period, prices can go up.
The crude palm oil has less than five per cent Free Fatty Acids (FFA). It is usually used in the vegetable oil processing industry.
Infrastructural deficiency, power failure and increasing cost
Speaking on behalf of plantation owners and processors of crude palm oil, Ibru said most factories and processing plants are running on diesel power generators, self-made road networks, water and other facilities, urging the government to really come to the aid of investors.
He said: “The bottom line is that smuggling through our porous borders is impacting very negatively on the industry. Rice producers are also lamenting smuggling of the product. Even Aliko, because he is also into rice processing now, complains about smuggling, that Nigerian borders are porous.
“People in the poultry industry are complaining. What is going on implies that Nigeria is a free market for everybody. So, the Nigerian Custom Service has to be effective. The government should not turn its eyes away from the realities of these threats to the industries. The economy is difficult right now, but these factors also make it more difficult.”
He disclosed that he runs his farm and oil mill on diesel power generators 24 hours and seven days in a week, saying, “In Indonesia or Malaysia, they are not burning diesel. I have three generators, because in the peak season, we run two shifts. One generator for day and another one for night operations. And we have one stand-by generator in case any of the two is faulty.”
He explained that cost of production had gone up drastically in the last six years, and that wages, cost of transportation and the price of diesel, because of deregulation, are going up.
“Now, price of crude palm oil is going down, but cost of production keeps going up. We are on the verge of operating without profits. Most of the funds invested are bank loans and we have to pay loans,” he lamented.