Indonesia Bans Oil Palm Export

Indonesia’s unexpected ban on palm oil exports presents Nigeria with a lucrative chance to fill the vacuum as foreign buyers hunt for alternatives, but Nigeria is simply unable to capitalize on the opportunity in a sector it previously controlled.

Palm oil, the world’s most produced, consumed, and traded edible oil, followed by soybean oil, rapeseed oil, and sunflower seed oil, rallied this week after Indonesia, the world’s largest exporter, announced on Friday that it will ban all exports beginning April 28 to deal with rising cost of domestic edible oil.

The surprise statement threatens to exacerbate global food prices, which has already been exacerbated by Russia’s invasion of Ukraine. Both nations supply the majority of the world’s sunflower oil.

Indonesia stepped back a bit on Tuesday, announcing that it will exclude crude palm oil from the ban, while the shipment of refined palm oil called RBD palm olein will continue.

In response to the latest news, palm oil futures for July delivery rose seven per cent to 6,799 ringgit ($1,564) a tonne in Kuala Lumpur, the highest since March 11, while the nearby May prices climbed more than nine per cent to a record for the contract, according to Bloomberg.

Even with the partial pull back, the decision is bound to inflate prices around the world, including in Nigeria, because palm oil is used in thousands of products from food to personal care items. The prices of packaged food such as biscuits, noodles, and cakes are expected to rise.

“It will affect Africa badly because we import a lot of palm oil from that part of the world,” said Billy Ghansah, agriculture coordinator at Okomu Oil Palm Company. He said the export ban is too abrupt and will affect Africa significantly.

But the ban and the turmoil it has generated in the international market has exposed Nigeria’s fragile dependence on oil imports and its glaring inability to provide alternative supply to international buyers in a market it once led.

In the early 1960s, Nigeria was the world’s largest palm oil producer with a global market share of 43 per cent. Today, it produces just 1.4 million metric tonnes of palm oil, a dismal fraction of Indonesia’s 44.5 million metric tonnes as of 2021.

Nigeria is now a net importer of palm oil; it consumed 2 million metric tonnes in 2021, leaving a deficit of 0.6 metric tonnes, according to the United States Department of Agriculture(USDA) showed. Between 2012 and 2021, Nigeria imported over 4.1 million metric tonnes of palm oil, the USDA data showed.

Failed efforts and missed opportunity

From 1975 to 2009, Nigeria was the second-largest recipient of World Bank funding for palm oil investments with six projects. However, only one project survived. Efforts by successive governments to revitalise the sector have been unsuccessful.

After taking office in 2015, the Buhari administration introduced a ban on the allocation of foreign exchange to importers of palm oil, as well as other products, in an effort to encourage local production. The government also taxed importers of crude palm oil 35 per cent duty.

In 2019, the government launched a $500 million plan to increase funding to producers of oil palm through low interest loans, with the aim of raising domestic output by 700 per cent by 2027.

The result has been relatively better but weak. Palm oil production rose from 955,000 metric tonnes in 2015 to 990,000 metric tonnes in 2016, and 1 million metric tonnes in 2017. In 2018 and 2019, Nigeria’s palm oil production averaged to 1.1 million metric tonnes, and then it climbed to 1.2 million metric tonnes and 1.4 million metric tonnes in 2020 and 2021 respectively.

According to the Central Bank of Nigeria, if Nigeria had maintained its market dominance in the palm oil industry, the country would have been earning approximately $20 billion annually from cultivation and processing of palm oil as of today. That’s about half the 2022 federal budget.

Source: premiumtimesng.com