Indonesia’s palm oil policy points way for Nigeria

21.05.2018

Indonesia is world’s largest palm oil producer and exporter by a mile today. The Southeast Asian country produces 36 million metric tonnes (MT) of palm oil annually, followed by Malaysia, with 21 million MT.

The third and fourth are Thailand, which produces 2.2 million MT, and Colombia, with 1.3 million MT.

The oil palms planted in Indonesia and even Malaysia were said to have been taken from Nigeria, precisely Calaro Estate, in the present day Mbarakom in Akamkpa Local Government Area of Cross River State.

In their work entitled, ‘Oil Palm Plantations in Indonesia: The Implications for Migration, Settlement/Resettlement and Local Economic Development’, Suseno Budidarsono, Ari Susanti & Annelies Zoomers admitted that the origin of oil palm in Indonesia was the tropical rainforest of West Africa, from mostly independent small farmers with landholdings of up to 7.5 hectares.

Indonesia planned from the late 1970s to make palm oil a major source of foreign exchange earnings, and neither political instability during the periods of Sukarno or Muhammad Suharto nor the era of reforms could change that.

Though early policies were state-led like the case of Nigeria, it was consistent and purposeful. The Indonesian government first established what was known as Nucleus Estate Scheme (NES), through which state-owned plantation firms supported farmers to grow oil palm. The plantation companies

provided seedlings, technical assistance and financing to small holders, according to Budidarsono, Susanti & Zoomers, while the output were purchased by the mills.

The policy was linked and integrated with other policy objectives such as population re‐ distribution through resettlement schemes or transmigration (moving people from densely populated regions to scarcely populated areas), socio-economic progress, regional development, increased agricultural production, employment generation and political consolidation, among others.

The second stage of oil palm development came between 1995 and 1998. John F. McCarthy, a researcher, explained that this stage was private-sector led and was aimed at facilitating foreign direct investment and accelerating estate crop development.

The state-led model was criticised by the World Bank as unsustainable. The bank had urged the Indonesian government to leave oil palm development to market forces and stop subsidies.

The government eventually heeded the advice, more so because the subsidies were taking a big toll on government revenue.

The Indonesian government introduced what was known as Koperasi Kredit Primer untuk Anggota (KKPA), which was characterised by a more direct private–community partnership model.

This market-led approach opened the door for foreign investors who came in and pumped money into plantations development. Apart from the fact that taxes were low, some of the investors were given tax holidays. There was an emergence of independent smallholder farmers who moved into the oil palm area. In fact, there was massive movement of nationals to designated oil palm areas owing to the influx of foreign investments.

From 1998, Indonesia introduced what McCarthy called ‘laissez-faire’. This was characterised by decentralisation, public–private partnerships between market actors and the government, as well as social–private partnerships between market actors and communities.

Existing estates had to enter into partnerships with large, capital-intensive companies willing to invest in labour-intensive oil palm projects.

During this period, farmers gained access to oil palm technology and improved their incomes.

The farmers were eventually able to access investment capital, obtaining land certificates, which could be used as collateral for borrowing money from local banks to expand production.

“At a time of rising oil palm prices, many of these new landowners used these accumulated assets to rapidly expand their holdings,” Budidarsono, Susanti & Zoomers said, adding that during the later years of the oil palm boom ( prior to 2008), these actors

were joined by successful KKPA farmers, who were using incomes from productive oil palm holdings to invest in upgrading unproductive land into oil palm plantations.

The outcome of the investments was spontaneous frontier development on the margins of already palm oil plantations.

The results of consistency and lack of undue government interference was that, as of 2011, oil palm plantations in Indonesia covered 7.8 million hectares (ha), out of which 6.1 million ha were productive plantations under harvest.

In 2016, the country earned $18.6 billion from exporting Crude Palm Oil (CPO) alone. That year, the country produced 31.5 million MT and exported 26.6 million MT, demonstrating an export-led industrialisation policy.

Indonesia has two islands—Borneo and Sumatra—accounting for 96 percent of its palm oil production. Unlike Indonesia, Nigeria’s previous oil palm estates are still far from their previous states, except the ones in Cross River, revivified by PZ Wilmar, and the ones in Edo, resuscitated by Presco and Okomu.

Nigeria is fifth biggest producer of CPO in the world, with capacity estimated at 900,000MT to 1.3 million MT. The country cannot even satisfy local demand now, estimated at 2.1 million MT.

By 1960, Nigeria supplied 45 percent of the global market, but this position has long been taken by Indonesia and Malaysia. The policies by successive governments in Nigeria since oil boom of early 1970s focused on crude oil, leading to the neglect of oil palm plantations and consequent deaths of oil palm estates in Imo, Cross River, Rivers, Ondo, Abia, Enugu and Ebonyi, among other states.

Currently, the sector lacks funding as the government does not see why it should fund a crop with a long gestation period, industry players complain. Banks are also not ready to lend to the sector, unlike in Indonesia. Moreover, there is no palm oil plan in Nigeria, like there is in Indonesia, casting doubt on the seriousness of this government to develop this crop.

Moreover, smuggling of palm oil is very common today, thereby squeezing the margins of local investors.

“Most of the palm seedlings available in the country are poor. We don’t get enough quality hybrid seedlings for planting, which will give us higher yields. We have to source for quality seedlings by importing them,” said Brian Hammond, managing director, IMC Limited in an earlier interview with BusinessDay.

The oil palm belt covers 24 states of Nigeria, including all nine states of the Niger Delta and the South-east part of the country.

BusinessDay investigation showed that the once abandoned Adapalm, located at Ohaji, Egbema, in Imo State, is now in full gear.

It is now a joint venture(JV) between Imo State government and VTU, a Vietnam investor, which has so far pumped N300 million into the mills. The JV also involves the Ohaji community, which has a stake in the business. The mill covers 4,300 hectares of oil palm plantations in Ohaji, and it currently produces 30 tonnes of palm oil per hour, BusinessDay found.

The Calaro estate is now a hub of oil palm with PZ Wilmar planting 5,500 hectares of land.

PZ Wilmar, a JV between PZ Cussons and Wilmar of Malaysia, has almost 26,500 hectares (ha) of oil palm plantation in Cross River State, with a plan to increase to 50,000 ha in few years.

Okitipupa Oil Palm Plc in Ondo State is now ready for business after five years of closure, but nothing much is happening in the mills as of February this year when BusinessDay visited.

Already, a multinational oil company Victory Crystal Investment is interested and wants to pump $13m to resuscitate the mills, BusinessDay was told.

More so, BusinessDay gathered that Araromi-Ayesan Oil Palm, which was a shadow of itself early last year, is now on. It has 10, 468 hectares of plantations and already has a board chaired by Femi Okunniyi.

“Nigeria will need to plant at least 300,000 ha in the near future, which is an investment of over 700 billion naira and it will take us several years,” Santosh Pillai, managing director of PZ Wilmar told BusinessDay.

“It is a crop which has a long gestation period, and it takes 3-4 years to yield fruits and 7-8 years to achieve maturity. The industry requires massive investments,” Pillai said.

“Nigeria has all that is required to be self-sufficient in palm oil production. Indeed, the country should be amongst the top global producers of the commodity. We have good agro-climatic conditions, manpower readily available, land and the market. Most importantly, the oil palm originated here. Nigeria has a competitive advantage in producing oil palm,” he said.


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