As Indonesia bans palm oil exports, lessons and hopes for Nigeria

As the ban by Indonesia on the export of refined palm oil comes into effect today, Nigerian producers and consumers, like their counterparts globally, are concerned over the possible impacts of the action by the leader in the production of this commodity.

The ban comes on the heels of rising inflation in the local market, and the government hopes to increase the local supply of this essential composite product to cool off local consumer goods prices, as it exports about two-thirds of its total oil palm production. With the ban coming into effect, some 40 per cent of Indonesia’s oil palm exports, mainly refined, bleached and odorised palm oleum would be halted.

Indonesia leads the world in both the production and export of palm oil and this action by the Asian country has led to speculations that it would add more pressure on the price of edible oil which is already up this year.

The initial announcement had included both refined palm oil and crude palm oil in the ban, but this has been clarified. In a speech, last Friday, the Indonesian president had declared that: “The government prohibits the export of palm oil used in cooking.”

Whilst tensions are subsiding following Jakarta officials’ clarification that the ban would only be effective on Refined, Bleached, and Deodorised (RBD) palm oleum for a month, there are still concerns on the negative impact of this export policy on groceries and cosmetics supply chains across Asia and even Europe.

Analysts however believe that the low storage capacity of Indonesia may force its government to revisit the policy before the planned one-month cycle, especially as farmers may go on protest as their products begin to rot on farms due to the reluctance of factories to take new raw materials and feedstock, as they cannot sell the output.

One big lesson here is for Nigeria to revisit the opportunities in the palm oil segment of the agriculture sector, says Abiola Rasaq, a financial analyst. “Whilst the country has a huge potential in the production of this composite product, it continues to see lower output due to age-long neglect, deforestation, and poor replacement of palm plantations,” Rasaq told Daily Trust in an interview.

The likes of Okomu Oil and Presco are making efforts to expand capacity but the country needs a lot more than just a few commercial producers. Both small and commercial farmers need to be encouraged to regenerate oil palm production.

Rasaq notes further that while Nigeria was the largest producer of oil palm with over 40% market share in the early 1960s, we are ranked the fifth producer today, but worse still with only about 2% market share, according to a study by PricewaterhouseCoopers. “Indonesia today produces over 51million metric tons annually, several multiples of Nigeria’s production of barely 1.3million metric tons, which is less than our local demand, especially as more than half of our fastmoving consumer goods are made from palm oil and its derivatives,” Rasaq bemoans.

One of the challenges that Nigeria’s local palm oil production faces is competition from cheap imports that are allowed into the market.

This fact was captured in the statement of Gbenga Oyebode, the Chairman of Okomu Oil Plc, in his notes in the company’s 2021 annual report.

“Commodity prices for both of our company’s products increased during 2021. However, the lack of foreign exchange also assisted the company to sell our crude palm oil (CPO) into the local market without having to compete with illegal imports in the past year,” Oyebode noted.

For Rasaq, “Undoubtedly, a well-articulated and diligently executed strategy aimed at revitalising the palm oil sub-sector offers a significant prospect for exports, job creation, and improved life for Nigerians and it is not too late for a state government in the southern part of the country, where the country has an advantage in its production to take the bull by the horns and see this to fruition”.

Such a plan has to be a long-term strategy and the government has to be diligent in the execution, he points out, noting that this may be best achieved if there is a requisite partnership with the private sector in a way that limits public sector bureaucracy and intervention. He cites the Benin Republic and Cote D-Ivoire, which have made strong inroads on this, stressing that, “There is no crime understudying their strategy and adapting to our peculiarities.”

To achieve this target, all stakeholders, government, households, and businesses just have to collaborate effectively in revitalising this important sub-sector of the agricultural sector.

“If we must solve the big monsters of insecurity, hunger, poverty, and infrastructure, this is where it starts. We must be productive, and we must focus on areas where the country has a competitive edge, especially natural competitive edge such as palm oil.

“Everyone wants to have a service business, which is very essential, but we must create the primary and secondary products which the service businesses would take on as clients. We cannot afford cosmetic economic policies, as a nation, we must become more productive by driving economic activities in the real sector,” he said.