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Policies drive oil palm demand as uncertainty mars investments

By Femi Ibirogba, Head, Agro-Economy
17 February 2020   |   4:18 am
Demand for crude palm oil (CPO), a raw material used commercially by industrialists for vegetable oil and used for cooking by many Nigerians, has surged in the last six months.

Palm fruits and seedlings

• Stakeholders urge FG to scale up funding, unfold plans on borders
Demand for crude palm oil (CPO), a raw material used commercially by industrialists for vegetable oil and used for cooking by many Nigerians, has surged in the last six months.

The rise in demand, The Guardian investigation revealed, is not unconnected with some policies of the Federal Government.

The closure of the land borders, restricted access to forex for import of agro-allied products, import substitution industrialization, a 25-per cent levy on oil palm import and backward integration are some of the policies driving the demand.

However, some palm oil plantation owners and sector investors have expressed uncertainty over sustainability of the policies, expressing fear of loss of capital and investments in billions of naira in case of policy reversals or summersaults.

Mr Fatai Afolabi, a member of Plantation Owners Forum of Nigeria (POFON), admitted that large-scale smuggling has been heavily affected by the policy because crude palm oil is difficult to move by smugglers.

“In effect, the closure of boarders has helped in tackling large-scale smuggling. That will tell you that large-scale and industrial users, for that matter, were perpetrating smuggling of palm oil before the enforcement.

“It becomes difficult for them, and they have no choice but to patronise locally produced oil. I can tell you now that they have been sourcing their requirements from [oil palm] estates in Nigeria.

“As part of POFON, I am aware that some industrial users who were not patronising some local producers before the enforcement have now been booking in advance for supplies of crude palm oil.

“If, for instance, you are an industrial user, and in the last 10 years you have not been lifting crude palm oil from the large producers in Nigeria and all of a sudden, you start placing orders, then we should be asking you where you have been getting your products from,” Afolabi said, alleging that some big players had been a strong pillar for smugglers.

However, Afolabi charged the Federal Government to release the accrued funds from the 25 per cent tariff structure that was meant to develop the oil palm industry for the development of the oil palm value chain, saying, “it should be able to sustain itself based on the funds accruing from this. So, the fund is stakeholders’ fund; it is meant for the value chain development. It is not government’s.”

He argued that such accrued funds should be accounted for by the Central Bank of Nigeria (CBN), given to oil palm sector at zero or two per cent interest rate at most, and with a moratorium of about five years.

He suggested that such farmland should be used as collaterals, which could be taken over by the government if the owner fails to repay the loan.

However, a palm oil estate owner and processor, Mr Ajibola Bankole Adebutu, Managing Director of JB Farms Limited in Odogbolu, Ogun State, commended CBN’s one-digit interest rate, saying no farmer could make profit with commercial banks’ interest rate.

“As a person, I would have to commend the CBN on that. It is not every time you criticise. We have been a beneficiary of the interventions a few times. If you look at the oil palm development from the time of land clearing to the time the oil palm is self-sufficient economically, it is about a minimum of five years.

“Until recently, commercial banks’ interest rate was between 25 and 30 per cent. If I borrow N1 billion at 25 per cent to develop oil palm plantation, by the end of the fifth year, that loan would have probably become N3 billion. That is unsustainable. We could not take that kind of facilities,” Adebutu explained.

The government actually set in and started a single-digit facilities at 8 per cent, and although it is difficult to manage, it is more reasonable than 26-27 per cent from commercial banks, he added.

“To tell you the truth, we have enjoyed that. About six years ago, we got N500 million from the CBN, which we used and paid back in full. The CBN was impressed, and a few years later, they gave us N2 billion, which we have been paying back. We have never defaulted. I think we are more than half way now.

“So, there are good policies like that which you have to put your hands up and say yes, the government has done well here,” Adebutu said.

He suggested that the government should extend the anchor borrowers’ scheme to small-scale palm oil producers and link them up with processors as off-takers. This, he added, would create thousands of jobs for young Nigerians and women.

“As I said earlier, years ago, the government lifted the ban on importation of crude palm oil, and added a 25-per-cent levy. What some unscrupulous people started doing after that was, rather than bringing the palm oil directly to Nigeria, they took to neighbouring countries, paid 10 per cent duty, avoided 25 per cent levy in Nigeria, and trucked the palm oil into Nigeria with falsified papers, claiming that it was produced in the neighbouring countries, therefore, not subjected to the 25 per cent levy,” he explained.

“Since the closure of the borders, that has stopped,” he added, saying, “what we have now is that people are importing palm oil through our ports, and they are paying the duty and the extra levy.” It implies more revenue to the government, he said.

Asked if the closure had affected local demand, Adebutu said, “Yes, because the price of imported palm oil is now the benchmark for the price of locally produced one. And since the price of imported palm oil has gone up, the price of home-produced oil has gone up too.

“Because by closing the borders, local businesses are doing well. We have patronage now not only for palm oil, but also vegetable oil. Vegetable oil was smuggled through the borders. Before now, you would refine palm oil to vegetable oil, but no one would buy it.

“But now, you can produce and sell. So, that is good for us. The price of palm oil we buy from farmers and large-scale producers has gone up too. So, that is good for us. It is a win-win situation as of today,” he added while explaining impacts on the economy.

However, he said, some companies producing in Nigeria and selling to other African countries through the land borders are suffering. Thus solving a problem has created another, and stakeholders must also work to resolve the accompanying difficulty.

“Those companies are really suffering. We have to look for ways where solving one problem would not create another,” Adebutu said.

Mr Tunde Kuku, a palm oil investor in Ibadan, Oyo State, also lamented that as good as the CBN intervention in the oil palm sector is, it has never come to all stakeholders, suggesting that such interventions should be channelled towards associations rather than individuals.

“I have never benefited from the CBN’s credit facilities, but I have applied. They claimed they have given to some investors. And I think they are foreign investors,” Kuku said.

Henry Olatujoye, a member of the board of trustees of the Palm Oil Producers Association of Nigeria, however, suggested that palm oil sector interventions should be seen as a social security investment for industry development and employment creation.

He argued that small-scale farmers should be given free improved seedlings and other production incentives like land clearing, and linked up with large-scale processors as part of the integrated approach to developing the economy.

On the uncertainty of investment plans, Adebutu said investors do not want to jump into new multimillion naira plantation or processing facilities without adequate assurance and stability of policies. Taking steps towards new investment is risky, he said, if decisions are based on the transient gains encapsulated in the closure of the borders.

Adebutu said, “Development of oil palm plantation is a long-term business. The closure of the borders is spontaneous and nobody knows how long it will last. So, do I want to commit money to starting a new plantation, and just as I start, three months later, the borders are re-opened and you are back to the status quo?”

He called on the government and its agencies, especially the Nigeria Custom Services, to be proactive in finding lasting solutions that could enhance investment decisions.

“So, what we have to look at is a way that it is not only the border closure that will stop the illegal importation of all the items. Even if the borders are opened, and free trade is allowed, there should be mechanisms put in place that all the smuggling cannot take place again,” he added.

Afolabi pitched his tent with Adebutu on this, saying, “Interestingly, the way we have been going about the debilitating issue of smuggling in Nigeria has been that of buck passing and full of red herring. Most times we turn the focus and the heat on the small actors and the accessories in the smuggling link and conveniently divert attention away from the principals.

“A practical approach to stemming the tide of smuggling is to call a spade a spade and put our house in order in Nigeria, and then engage our neighbours in the same way that we have engaged them in trans-border crime.”

He recalled former President Olusegun Obasanjo met with his Republic of Benin counterpart on the issue of stolen vehicles in Nigeria readily received in Republic of Benin, and the ex-president demanded that the recipient-in-chief be arrested and handed over to Nigeria for justice.

“The Republic of Benin obliged and that was the beginning of the end of car snatching, especially in Lagos and Ogun states. In essence, Nigeria cannot continue to shield and protect the recipients of smuggled goods in Nigeria and expect their neighbours to punish their own culprits,” urging the country to deal ruthlessly with economic saboteurs to tame smuggling without unnecessary closure the borders.

Afolabi explained that “Just as in bribery, in smuggling too, there is a sender and there is a recipient, just as there are accessories. I think we have had enough of lip service on this matter.”

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