Mr Emmanuel Ibru, Chief Executive Officer, Aden River Estates Limited and Chairman, Plantation Owners Forum of Nigeria (POFON), speaks on the potentialities of the oil palm industry, its challenges, and how more investments and policies can help the country explore inherent diversification of the economy through the multipurpose oil palm sector. FEMI IBIROGBA, Head, Agro-Economy, reports.
• ‘Associations demand national palm oil council’
With the focus on agriculture by the Federal Government and subsequent announcement of intervention funding for oil palm plantation backward integration by the CBN, is the sector receiving a boost with the funds?
The focus on agriculture by the Federal Government of Nigeria and the intervention funding initiatives are a welcome development no doubt. However, its impact so far on backward integration in the oil palm sector leaves a lot to be desired. There are various funds available to the potential small and medium-scale investors, specifically the Commercial Agriculture Credit Scheme (CACS) and the Real Sector Support Facility (RSSF). There is also the Anchor Borrowers’ scheme for small-scale farmers. The CACS loan has a limit of N2 billion while the RSSF has a limit of N10 billion with maximum tenors of seven and 15 years respectively. On paper, this looks perfect, but in reality, accessing these funds has proven quite difficult to the average stakeholder. Therefore, the expected boost to the sector has not really been felt yet.
It is gathered that participating banks in the CBN’s loans are still averse to local farm investors. Is this true, from your experience as the President of Plantation Owners Forum of Nigeria (POFON)?
Backward investment in oil palm requires huge investment in land acquisition, land clearing and preparation, irrigation equipment, infrastructure and farm inputs such as extension materials (sprouted seeds, fertiliser, etc).
To properly develop one hectare of oil palm requires $4,000 to $5,000 and the gestation period is a minimum of three years. Therefore, one requires patient capital. Ideally, finance should be for a minimum period of 10 years with a moratorium of three years. The RSSF provides for this. However, the problems are: one, the funds do not belong to CBN. They actually belong to the commercial banks as part of their cash deposit ratios with CBN. Two, most banks are still very averse to agricultural lending, especially for such long terms with no cash-flow for the first three years. Three, those banks willing to lend are only ready to do so to very large established institutions with already strong revenue streams. These companies are, for the most part, multinationals. The SMEs that the fund is meant to target hardly have access. Furthermore, when it comes to the issue of collateral, the banks are hesitant to accept even existing developed land, let alone of undeveloped land if it is a greenfield project. The preferred collateral for banks are property in Lagos, Abuja or Port Harcourt. The irony is that the banks are more willing to lend for expansion of mills. But why invest in a bigger mill if you cannot guarantee your supply of feedstock? It is important to add that the barriers to entry for even large entities not already involved in the oil palm value chain are quite daunting; that is, the process of land acquisition, and so potential new entrants tend to shy away.
It is predicted that most industries in Nigeria still prefer buying crude palm oil from Malaysia and other places. Why is this so?
Actually, most industries would prefer to buy locally if: the quality is right; if the price is competitive and if CPO is readily available. With the current scarcity of forex, the devaluation of the naira, the inefficiency of the clearing process at the ports and the closure of the nation’s land borders, it makes more sense to buy locally. In the recent past, there has been large scale smuggling of CPO into the country, resulting in a drop in the price of CPO. This has reduced drastically with the border closure.
Is the backward integration policy started by the Goodluck Jonathan administration impactful on the oil palm sector?
Since the Olusegun Obasanjo administration, there has been increased investments in the sector. President Goodluck Jonathans policies were meant to encourage the rapid growth of the sector. Unfortunately, for reasons mentioned above, the full impact has not been felt.
What are the major challenges that you would want the government to address, going forward?
Obviously, there should be access to long-term single digit financing. By single digit, I mean as low as 3%. Also, there should be easing up the process for land acquisition. Again, there should be more funding for research and development. There should be stringent monitoring to ensure the payment of all duties and tariffs on the importation of CPO. Also, there should be stringent implementation of the ban on the importation of processed palm oil and its derivatives such as olein and stearin. Finally, there should be a pioneer status like incentives to attract more large-scale investors to the sector.
Are there potentialities of diversifying the economy through the oil palm sector, as often claimed?
There is potential to diversify the economy through the oil palm sector. However, to do so requires a very aggressive and well thought out strategy that requires massive investments in the next 10 to 15 years. We must fill the space with more players. Key is the proper organisation and harnessing of the smallholders who account for about 80% of the nation’s output. They must have access to more up-to-date farming methods and quality extension materials to increase the present low yield per hectare as compared to other major producers. It is imperative that we have a National Palm Oil Council similar to that of Indonesia, Malaysia and other major palm oil producing nations. This body should be responsible for the formulation, promotion, development and implementation of policies related to oil palm in the country. Its members must include representatives of POFON, Oil Palm Growers Association of Nigeria (OPGAN), the National Palm Produce Association of Nigeria (NPPAN), and Nigerian Institute for Oil Palm Research (NIFOR), amongst others.