CBN’s Proactive Intervention in Oil Palm Development

James Emejo, writes that amidst the current global supply shortfall in palm oil, the Central Bank of Nigeria’s foresight in initiating measures towards self-sustenance through the development of the sector is paying-off

According to recent reports, Indonesia, which accounts for 35 per cent of global palm oil exports, has suspended all exports of the highly essential commodity in a bid to bring down prices in the country and limit shortages.

The country’s decision to halt further exports in the face of domestic shortages had reportedly pushed vegetable oil prices to new highs, further tightening a market already unsettled due to the war in Ukraine and global warming.

The development has resulted in global supply deficit given that palm oil remained the most consumed vegetable oil in the world as the commodity is used heavily in processed food including instant noodles and baked goods as well as present in other consumer products, namely personal care items and cosmetics.

Huge potential but neglected

Ordinarily, the global supply gaps in palm oil ought to have put at a vantage position if the sector had been given the required attention over time. But, in spite of its huge potential, past administrations had neglected the oil palm development and agriculture in particular.  

In Nigeria, stakeholders believed that the oil palm value chain had enormous potential to restore the country back as a major producer controlling about 80 per cent of the market share but the lack of serious policy intervention had sidelined other non-oil segments.

At a recent summit of operators in the oil palm sector, the stakeholders had pointed out that the Nigerian oil palm sub-sector had nose-dived from its enviable position as a top export commodity income earner in the 1960s adding that despite being produced in 25 states of the federation, over $500 million goes into importation of palm oil annually, therefore restricting the country to the unenviable 5th producer of the commodity globally.

The stakeholders, in a communiqué issued at the end of a 2-day workshop and policy dialogue on “Pathways to Inclusive Policies and Climate Resilient Oil Palm Development in Nigeria”, which was organised by Solidaridad West Africa (SWA), further called on the government to deliberately dedicate a minimum of 60 per cent of the agriculture budget to capital projects to encourage diversification of the economy.

Production hiccups

The country’s oil palm industry is among other things plagued by the lack of proper scaling of milling technology which result in sub-optimal output, according to the CBN. It is further weakened by the inefficient synergy between stakeholders in the value chain; and the inability of the small millers to meet industrial quality, quantity and timeliness of delivery among others.

Oil palm production per annum is currently 1,250,000 million metric tons (MT) with current demand at 2,500,00 MT per annum.

Meeting local demand for both the Technical Palm Oil (TPO) used in industry and Special Palm Oil (SPO) used by households requires about $60 billion per annual

 CBN’s rescue mission through ABP

Although the consequences of the global supply deficit in palm oil had started to bite especially in economies around the world particularly those who make use of the commodity in food and cosmetics manufacturing, the consequence has been little or minimal in Nigeria.

All accolades have gone to the CBN Governor, Mr. Godwin Emefiele, whom analysts commend for his visionary leadership in making Nigeria great again, especially in the areas of agriculture and other critical sectors.

Through the Anchor Borrowers Programme (ABP), launched in 2015, among other intervention schemes, the CBN has revolutionised agricultural practice whereby smallholder farmers who hitherto could not approach commercial banks for loans, are now being granted credit facilities in the forms of inputs like seedlings, fertilizer and herbicides.

The ABP is particularly popular for revolutionizing local rice production and significantly reducing the country’s food import bill.

The oil palm industry, neglected over the past decades despite its promises to stimulate economic growth, has thankfully been a beneficiary of the apex bank’s intervention programmes aimed at repositioning agriculture.

Unprecedented Funding support amidst criticism

A few have questioned the incursion of the CBN into key sectors of the economy even though the positive results are there to show. Following up with its developmental mandate aside that of monetary stability, the apex bank under Emefiele has demonstrated how central banks can help to boost economic growth.

Yet, many have wondered what fate could have befallen the country if the CBN had not intervened in critical sectors of the economy especially agriculture amidst volatility in global commodity prices and supply.

Emefiele said the apex bank’s intervention will help to unleash the potential of the oil palm value chain with accompanying support for the economic diversification plan as well as the industrialisation aspiration of the country.

According to data from the CBN, to date, a total sum of N45.03 billion had been disbursed by the bank to stakeholders in the oil palm industry including the major producers, Small and Medium Enterprises (SMEs) and smallholders’ operators, to cultivate about 31, 442 hectares to grow the commodity.

The central bank said the country needed about N60 billion annually for the importation of palm oil to meet domestic consumption covering both the Technical Palm Oil (TPO) used in industry and Special Palm Oil (SPO) used by households.

According to the apex bank, the country’s palm oil production per annum is currently estimated at 1,250,000 million metric tons (MT) with demand valued at 2,500,00 MT per annum.

According to the CBN, for the country to achieve 50 per cent import substitution through production upgrade within the next 10 years, there is a need to bridge demand deficits for domestic production of fresh fruit bunches from 8.5 million MT in 2010 to about 10 million MT.

According to the fourth quarter 2021 trade statistics by the National Bureau of Statistics (NBS), crude palm oil imports from China totaled N20.28 billion and N16.49 billion from Malaysia as well as palm olein worth N31.43 billion imported from Malaysia.

The ABP was launched in 2015 to curtail excessive imports particularly palm oil and other food products that could be competitively grown in the country.

Emefiele, said recently that the achievements so far recorded in the implementation of the ABP had started to record giant strides in the production of maize and cassava and expressed optimism that in the next 12 months, palm produce harvests would have commenced in the country.

The CBN governor, who stressed that agriculture remained a strong pillar for Nigerian economy, had expressed satisfaction over the level of interest shown in agriculture and the tremendous impacts that the sector had recorded in the last six years.

Emefiele, like several other Nigerians, had particularly wondered how the country would have coped with the rising prices of food and commodity items across the world – without the foresight to revamp agriculture.

The apex bank boss, in a document, further disclosed that the ultimate objective of the CBN intervention in the oil palm sector was to overtake Thailand and Colombia to become the third-largest producer over the next few years through increased oil palm production by 2028.

He said, “Core objectives of the intervention include, to meet local demand for palm oil and improve local processing quality and standards; conserve foreign exchange; create jobs and enhance the skills of Nigerian people along the oil palm value chain.”

Other objectives of the funding support to the sector are to facilitate easier access to funding for oil majors, SMEs and smallholder farmers as well as improve and grow the economy.

Emefiele, after an assessment of oil palm estates in Edo State recently, had disclosed that Specifically, two companies, Okomu Oil and Presco Oil, which are involved in oil palm production in Edo State had received about N20 billion to boost their operations while Greenfield, another firm involved in the production of ethanol in the state had also been granted N7 million under the CBN’s ABP.

Emefiele said, “In South-South where I come from, and where I have been personally criticised: In Edo State where Governor Obaseki comes from, we have disbursed over N10 billion. Some of you may have seen some of our programmes in Edo State in 2019 where we advocated the provision of land to companies that are interested in palm plantation as well as in cassava.

“We disbursed about N7 million to a company called Greenfield that is building an ethanol plant in Edo State. We will be doing anchor borrowers for cassava farmers that will feed the ethanol plant.

“In Edo State, Okomu is there, Presco is there and they know that we have disbursed to the two of them close or more than N20 billion to expand their palm plantations.

“If you go to the Nigerian Stock Exchange, you will find that today, Presco and Okomu, their profitability and their dividends payout is unassailable among other companies involved in producing palm and palm oil in Nigeria.”

Emefiele, further explained that it was for this reason that the CBN believed and decided that since the country could produce crude palm oil, “we placed palm oil on our FX restriction.”

He said, “Today, people are making money producing palm oil and selling and people refining and they are making money.”

Forecast

The apex bank altogether hopes to cultivate 350,000 hectares of palm oil by 2028 by funding oil palm majors and SME that meet funding requirements for plantation development and mill construction.

This is expected to close the supply gap and enable the industry to meet local demand, improve local processing quality standards and conserve foreign exchange of about $500 million annually.

The CBN also seeks to develop a framework for the inclusion of smallholder farmers given their potential as well as facilitate stakeholder engagement towards supporting the industry.

Furthermore, the CBN interventions are expected to increase production from 1,250,000 million metric tons to 2,500,000 million metric tons by 2026.

Emefiele said the bank’s intervention in the oil palm sector will be able to unleash the potential of the value chain with accompanying support for the economic diversification plan as well as the industrialization aspiration of the country.