Godwin Emefiele, CBN Governor

…plans to save palm oil industry


Beyond the injection of a support facility and a presidential directive to blacklist any firm, their owners and top management engaged in smuggling or dumping palm oil into the country, more steps would need to be taken if the nation is to regain its pride of place in the palm oil business, stakeholders in the sector are saying.

This is even as two of the leading firms that are engaged in the palm oil trade in the country, Presco and Okomu Oil are struggling to remain afloat in the wake of the choking realities that the sector is presently gripped in.

News of the Federal Government’s current inclination to wield the big stick on the acts of malfeasance that have been noticed in the sector came to the fore recently with the revelation of a presidential directive to that effect by CBN Governor, Mr. Godwin Emefiele, at a meeting with oil palm producers in Abuja last week.

Under the directive, offending firms and players are to be blacklisted from the foreign exchange market and indeed the overall banking system.

Giving more insights into the current workings of government on the issue, and as reflected in the Abuja meeting that was attended by Edo State Governor, Godwin Obaseki , Governor of Akwa Ibom, Udom Emmanuel and Abia Governor, Okezie Ikpeazu, the managers of Dangote Farms, Flour Mills, United Food Industries and Dufil Frima Foods Plc, among other executives of oil palm producing companies, Emefiele disclosed that it was part of a broader plan mandating CBN to support firms and individuals engaged in the production of rice, maize, cassava, tomatoes, cotton, oil palm, poultry, fish, and livestock dairy and cocoa.

Responding to the news of the directive, Mr Michael Akwama, an Owerri-based plantation farmer and agro-sector analyst said that though he was generally in support of the initiative, more surely needs to be done if the substantial issues were going to be addressed.

‘In my experience and that of growers and agro-sector watchers, the challenge is much deeper. We are talking here about a sector that is very heavily constrained by the impact of product smuggling into the country. I really do not want to be pessimistic but if we do not address the over-hanging concern of smuggling, we may really only be pouring money once again into the ditch.’

Shedding more light on his concerns, Akwama posited:

‘Let us take a brief look at the oil palm sub-sector. Even before this new directive, palm oil was already on the CBN’s foreign exchange prohibition list. However, somewhere down the line, official channels were opened to allow for what was then termed limited palm oil importation to bridge perceived quantity deficits. But what that practically translated to, was that smugglers also cashed in on it to do more damage to the local oil palm industry. The volume of products smuggled illegally into the country through our various borders and ports of entry was already taking its toll on the industry and the opening of that window helped to compound it. A core reason for this is the fact that the price of imported palm oil is far cheaper than that locally produced in Nigeria to the extent that Nigeria is gradually becoming a dumping ground for foreign palm oil. The low price is hurting local oil operations and a as result many who had embarked on massive investment in this industry are currently applying the brakes. It is that bad.’

To be sure, the palm oil trade is, and has been big business the world over. And Nigeria has had a fairly long experience with it. In the build-up to the making of the new nation, after the establishment of the Colony of Lagos in 1861, the next major foray of the emergent mercantilists from Europe was the rich palm oil trading belt of the Niger River confluence area. In an era where territories were named after their major economic assets, the area was dubbed the Oil Rivers Protectorate. It remained so until its later integration into the Southern Protectorate and then the amalgamated nation of Nigeria in 1914.

And so from the time of Jaja of Opobo, Nanna of Itsekiri and coming on to the colonial, Independence and post-Independence eras, the palm oil trade loomed large as a major source of wealth and revenues for individuals, firms, and regions and indeed, the nation. This went on for decades until the discovery of the other oil, crude oil, at Oloibiri in 1958 and the unthinking over-concentration of attention on the new trade in the fossil fuel shifted the tide heavily in favour of the newer oil; and to everyone’s loss.

It was during this period then that a lot of the notable strides that had been recorded in the sector, including the establishment of the landmark Nigerian Institute for Oil Palm Research, NIFOR, were now to be neglected, if not abandoned.

Indeed, things got so bad until expanding global demand for the product began to encourage global players to on their own, return to set up shop in the area once again. And it is these initiatives that led to the establishment of Presco Oil and Okomu Oil that have continued to blaze the trail in the sector.

Underscoring the depth of the current problems that the sector is gripped in, Akwama went on to give details of some of the pangs that are being witnessed by players, big and small.

‘One of the biggest agro investor in this sector for the first time in over two decades had decided not to engage in either planting or replanting this year. Another is selling off 1,000,000 seedlings to the public. This is what they had previously planned to plant this year. Yet another has massively scaled down their investments in the sector. These three companies are the largest oil palm business concerns in Nigeria.

Asked to proffer a solution to the crisis, Akwama says: ‘The new intervention by the CBN is good. But it may not be enough. The Nigerian government should as a matter of urgency take urgent holistic steps to put the activities of these smugglers into serious check. The current Comptroller-General of the Nigerian Customs Service, NCS is seen publicly as one who is intolerant of any acts of smuggling and has devoted time, resources and human capital in this regard. So why are these economic vandals still in business? Why is the smuggling of palm oil products into the country still so huge a challenge even now?’

Groping for Breath

In the midst of the challenge, the leading players in the business are barely groping for breath.

On May 2, 2019, Presco Oil posted a notice with the Nigerian Stock Exchange pleading for more time to put together its end year 2018 and first quarter 2019 reports as stipulated under the terms of its listing.

In the notice, it blamed the delay on the need for experts to finish work on its biological assets valuation. But market watchers think that was simply a euphemism for ‘these are tough times.’

Whatever it is, the current intervention by the CBN comes as a relief of sorts. The rest of the issue would be to determine how far-reaching that would be.

To be fair, part of the CBN initiative as already explained by Emefiele is targeted at allaying some of the concerns of sector players. According to him, the bank would be encouraging viable off-taker agreements between farmers and large-scale palm producing companies.

He said, “We want to ensure palm oil production is aggressively increased in Nigeria. Nigeria in the 50s and 60s used to be the largest producer of oil palm in the world with a market share of 40 per cent.

“For one reason or the other, particularly because we found crude oil which by any analysis is cheaper than palm oil, we decided to abandon our God-given gift of palm oil. By doing that, we lost jobs.

“Our farm lost jobs because we began to import palm oil from different parts of the world.

Akwama also warns of the need to not repeat the mistakes that have been noticed about the implementation of existing bans on rice importation.

‘I have read of the alarm sounded by Olam Nigeria and Aliko Dangote on the devastating effects that smuggling on local production and the entire Nigerian economy. They are troubled because the volume of smuggling is mind boggling and capable of crippling local production/capacity.

Rice importation is on the CBN prohibition list of items that are excluded from accessing Forex for their imports. CBN and custom authorities placed special focus on the rice subsector by tightening and strengthening border compliance duties of the Nigerian Custom Service to ensure total compliance to the zero tolerance to rice importation policy of this administration. The aim is to boost local rice farming/production. In living up to this singular objective, CBN made available hundreds of billions of naira to rice farmers using the Anchor Borrowers fund platform.

However, the market is still stuffed with imported rice and reasonable people are asking if the foreign rice is magically being ferried in by ‘spirits!’ Go to any market in Nigeria and you are readily welcomed by the openly displayed foreign rice. And you ask, what’s the outcome of the tough tactics that the NCS adopted in the fight against rice smuggling into Nigeria?

Olam that has invested hundreds of millions of dollars in rice farming in response to the backward integration policy of the Federal Government is struggling to meet its objectives because of the heightened activities of rice smugglers. Olam and other key investors in this subsector are having their investment drives threatened.’

At the core of the matter is the fact of whether there is indeed deep political will to truly fix the smuggling challenge as broadly as it should be tackled.

Analysts say that to address this you have to focus on building a truly transparent and competitive economy. You can’t do this without loosening the current unitary choke-holds that continue to hold down the nation’s corporate growth potentials overall. Since these issues tend to bother on the offending precincts of true and fiscal federalism and would invariably involve the transfer of many of the items that are currently domiciled in the current exclusive list to the concurrent, if not residual list, which influential elements within the current administration have affirmed that they are not willing to consider, then we may continue to be left with problem-papering options and solutions.

How Presco is faring

Arising from its trading numbers in its 2017 full year report, Presco recorded N22.37billion revenue and went on to declares N2bn dividend broken into 200 kobo per unit held by shareholders.

This was a significant revenue growth from the N15.72 billion it had posted in 2016, and representing a 42.3 per cent growth. Profit after tax, after accounting for changes in fair value of biological assets, was N25.40 billion, which also was an improvement on the 2016 figure of N21.74billion

Further broken down, Fresh fruit bunches, ffb, harvested in 2017 was 169, 352 tons compared to the 2016 figure of 164,513 tons while crude oil palm produced was 37,637 tons which also was a marginal improvement over the 2016 figure of 35,555 tons.

As for refined, bleached and deodorized oil, the 23,330 tons produced in 2017 was lower than the figure recorded in 2016 when it produced 28,506 tons. It was a similar situation for olein and stearin where it produced 8,294 tons in 2017 compared to the 10,946 tons produced in 2016 by this member of the world-renowned SIAT group.

On the arena of oil palm planting, Presco cultivated 3,600 hectares in 2017 and set its target to increase its acreage by cultivating a further 3,500 hectares in 2018. It was equally expected to complete work on its new refinery and fractionation plant, palm kernel crushing plant and increase installed capacity of the palm oil mill in 2018.