How forex restriction escalated palm oil price

Nigeria was the world largest producer of palm oil between 1950s and 1960s. It had a market share of 43 per cent, supplying 645,000 metric tonnes of palm oil, on annual basis consumers across the globe.
Sadly the country fell from being the largest producer of oil palm to net importer of the product. It is not surprising therefore that shortly after the commodity was included among the 41 items banned by the Federal Government from accessing official foreign exchange markets in June 2015, the cost of local palm has risen beyond the reach of many. The ban has increased the demand for the product in the market, while production has not increased.
Nigeria produced 930,000 tonnes of palm oil in 2013 and the forecast for the 2016-2017 season is 970,000 tonnes, making it Africa’s largest producer and the world’s fifth, behind Indonesia, Malaysia, Thailand and Colombia, according to data from the US Department of Agriculture (USDA).
The restriction placed on the commodity to benefit from foreign exchange forced the manufacturers who used to import palm oil to source for the commodity locally, which is part of the reasons the price of palm oil increased significantly and the product becoming scarce across major markets in the country between 2016 and 2017.
Manufacturers, who use the product in the manufacture of ice cream, margarine, cosmetics and confectionaries, among others, are now competing with households for palm oil as they could no longer import palm oil listed among the 41 items restricted from accessing foreign exchange in the local market by the Central Bank of Nigeria (CBN).
Daily Sun learnt that a 25-litre can of palm oil, which sold for N6,500 in January 2016, now sells for between N22,000 and N25,000, an increase of 284 per cent while a bottle of palm oil, which sold for N220 in January 2016, sells for N720, an increase of 227 per cent. The five litre keg of palm oil sold for N1,300 in 2016 now goes for N5,000, an increase of 284 per cent at major markets and supermarkets in the country.
A palm oil trader at the popular Daleko market, Madam Foluke Agboola, who spoke to Daily Sun, said that some months back, the price of the commodity was very high.
She said 25 litres was selling between N22,000 and N25,000 but last week, the price came down a bit to at least N16,000, saying by April, the price will come down to normal but between June and July, which is rainy season, the price will also rise by a certain percentage.
Nigeria produces one million metric tonnes of palm oil per year, with local consumption estimated at 2.7 million metric tonnes which put the demand supply gap at 1.7 metric tonnes per year.
USDA and Vetiva Research stated that Nigeria currently exports 900,000 metric tonnes of palm oil and earning $594.9 million at today’s price of $661 per tonne and this represents 1.5 per cent of the global 58.8 million metric tonnes output.
Ironically, despite being among 41 items banned from accessing official foreign exchange markets in June 2015, Nigeria imported palm oil worth 1000 metric tonnes with the growth rate of 33.33 per cent in 2016, according to IndexMundi, a data portal that gathers facts and statistics from multiple sources and turns commercial use.
Since Nigeria could still import 1000 metric tonnes of palm oil in 2016, being among the 41 items banned from forex market, it is obvious there is loophole in the Federal Government policy.
Speaking to Daily Sun, National President of Palm Produce Association of Nigeria, Olatujoye Henry, said, “the price of palm oil has started going down and there is a lot of demand and supply. The government policy that removed palm oil from the list of commodities that will benefit from foreign exchange has really helped because there is no importation and there is now dependence on domestic production.”
He advised government to encourage investment in palm plantation development, saying there was urgent need for government to provide enabling environment in terms of soft loans, guarantee for equipment for processing to come into the country with less duty on them.
According to him, government should also encourage backward integration of palm plantation in the country.
On the challenges facing the association, he said: “The challenges facing the association are the normal challenges. Everybody is begging the government for assistance, which is not supposed to be. One of the challenges facing our association is funding. We don’t have the capacity to move the association forward in terms of funds. To meet domestic and international demand in palm oil, government must play its role by assisting us and providing other incentives.”
Meanwhile, the Deputy Managing Director of Peniel Gera International Limited, a seed company, Ojiefoh Enahoro Martins, who is also a palm oil farmer in Delta State, said the major problem with palm oil in Nigeria is lack of improved varieties.
Now that government’s policy has prevented the commodity from accessing foreign exchange, he said if drastic actions and steps are not taken, by 2020 Nigeria would start importation of palm oil.
He lamented that the Nigerian Institute for Oil Palm Research (NIFOR) that was supposed to serve as a reference centre has been politicised, stressing that the yield of palm oil in Nigeria is low compared to other producing countries like Malaysia and Indonesia.
He added: “We remember vividly that the Malaysian government took seedlings from us and improved it and today they are a major exporter of palm oil in the world. For us to be among the major palm producing countries, our local seeds need to be improved. Government, over the years, has not shown concern for oil seed products; not only palm but majorly oil seeds products.
“The local fabricating machine for extracting oil has less capacity and imported foreign machines are always expensive for local farmers. We purchase local machines from Agbor, Delta State, to substitute for imported machines. Oil seeds products are crucial to over 98 per cent of Nigerians and it is too important to ignore.”
Before now, he said Nigeria played a vital role in palm oil production and its quality was the best. But since early 90s the reverse has been the case and the country is facing dwindling production.
To revive the sector, he stated that improved seedlings and palm estate projects for communities by government have to be introduced across the major palm oil producing states, including Cross River, Edo, Delta, Ondo, Oyo, Ogun, Osun, Ebonyi, Imo, Abia and Kogi states.

Readers choice: TOP-5 articles of the month by UkrAgroConsult