Even though Nigeria is the 5th largest producer of palm oil in the world, it is nevertheless heavily dependent on imports of the product because its local demand is unmet. Information gathered by the National Bureau of Statistics (NBS) reveals that for the first time in more than three years, palm oil was exported from Nigeria in the third quarter of 2022 due to revenue, even though that domestic production was insufficient to meet demand. Compared to N642.61 million in Q3 2018, N736.33 million in Q2 2018, as well as N1.26 billion in Q1 2017, the amount of palm kernel oil exported from the country increased to N2.48 billion in Q3 2022, according to NBS statistics.
The United States Department of Agriculture (USDA) estimates that Nigeria’s palm oil output increased by 9 percent, from 1.28 million metric tonnes (MT) in 2020/21 to 1.4 million MT in 2022. Recently, Agro Nigeria also projected that by the 2021/2022 harvest year, demand for palm oil in Nigeria would reach over 1.8 million metric tons. As local demand has increased over the years, Nigeria’s production shortage has grown, and during the last 5 years, on average, over 25 percent of the country’s annual domestic palm oil consumption has come from imports.
Nigeria heavily depends on palm oil importation due to poor farm practices.
According to Isyode Eseyin, who is a research analyst at CardinalStone Partners, the demand-supply imbalance that has resulted as a result of the country’s dependence on subsistent or uneconomical farming, instability, and poor access to financing has caused the country to become heavily dependent on the importing of palm oil. However, the propensity of the current high cost of dollars in the present moment appears to be too much for local producers to resist, he added.
Furthermore, Eseyin said that the Nigerian palm oil sector is highly unstable and occupied by several local farmers, who constitute 80% of domestic production. Furthermore, the majority of them are not familiar with contemporary agricultural procedures. Thus their productivity and output are much lesser than they might be. As a result of the fact that Nigeria exports the little amount of palm oil that it produces amidst the demand-supply imbalance in the local market, the gap is certain to increase, and palm oil importation is expected to rise.
Different initiatives have been set up to improve productivity.
In order to reduce the demand-supply imbalance and stimulate local investment, the government prohibited importers from obtaining foreign currency at the interbank market for refined palm oil. Crude palm oil (CPO) duty was raised to 35%. The Central Bank of Nigeria (CBN) has also established other intervention initiatives, including the Anchor Borrowers Programme. Farmers may borrow from deposit money banks and other cooperating financial institutions at single-digit interest rates. The financing program for palm oil has a 9% annual interest. In 2019, the Federal Government ordered the CBN to promote corporations and individuals producing 10 agricultural products, including palm oil.
Through the CBN, the government introduced a $500 million low-interest loan scheme in 2021 for oil palm producers, which includes both smallholders and large farms. By 2027, the domestic output is expected to expand by 700%. New oil palm farms are being developed by private firms using early as well as high-yielding seedlings. In order to speed up the extraction and crushing operations, these businesses are also making technological investments. Production will also increase as a result of other projects, such as the Edo State Oil Palm Programme. Additionally, Nigeria’s Institute for Oil Palm Research has enhanced the nation’s output of oil palm seeds with greater yields.
The palm oil deficit gap poses an opportunity for investment.
More so, the concluding United States Department of Agriculture (USDA) report affirmed that domestic supply meets around 78% of demand, while Nigeria consumed 2 million MT in 2021, leaving a gap of 0.6 million MT in 2012 and 2021. Because of this, Nigeria is heavily dependent on imports of palm oil, with estimated yearly imports of roughly 400,000 tonnes in the last five years, according to CSL Stockbrokers Limited. Therefore, this provides a chance for investments in the manufacturing and processing phases.
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