Adapting to changing palm oil price fluctuations
Last year, the cost of palm oil increased. The price of a bottle of palm oil increased from N775.11 in November 2021 to N1,006.64 in November of last year, according to the National Bureau of Statistics (NBS). Also, the bureau said that the Northeast had the lowest average price of palm oil at N765.04, while the Southwest had the highest average price at N1,174.30, followed by the Northwest at N1,129.63.
Early last year, the two biggest palm oil producers, Okomu Oil Palm and Presco Plc., increased their first-half revenue by 83% from N45.09 billion in 2021 to N82.47 billion. Nevertheless, the major producers of crude palm oil (CPO), Malaysia and Indonesia, boosted their supply in the fourth quarter by 29.2%, and demand from China and India was projected to slow down as a result. As a result, Okomu Oil Palm and Presco Plc reported a fall in quarterly revenue.
However, both businesses’ third-quarter revenue fell by 36.47 percent to N26.91 billion from N42.36 billion in the second quarter of last year, bringing their combined revenue to N59.84 billion in the second half of last year, which is a 27.43 percent decrease from N82.46 billion in the first half of 2022. (January to June).
Notwithstanding this, the income recorded by Nigerian palm oil producers increased by 68% to N142.31 billion in 2022 from N84.82 billion in 2021, resulting in a total profit of N38.81 billion, a 26% increase from N30.86 billion in 2021.
While vegetable oils were the highest on record last year, the Food and Agricultural Organisation (FAO) claimed the prices declined for nine months in a row.
Its lowest position since February 2021, the FAO Vegetable Oil Price Index averaged 144.4 points in December, a decrease of 10.3 points from November. The index fell as a result of reduced worldwide price quotes for popular vegetable oils like palm, soybean, rapeseed, and sunflower oils. World soybean oil, rapeseed, and SFO worldwide prices all fell as a result of sufficient global supply and muted import demand, while world palm oil prices fell by about 5%, driven by a slowdown in global import demand.
According to Mr. Jerry Sam Etukapan, Chief Executive of James Energy and Construction Ltd (Jemas Palmoil), the price of palm oil will be on a downward trend over the next three months due to poor purchasing power brought on by the currency pressure. He claimed that because fewer people were purchasing palm oil, 25 liters now go for N4,000.
He clarified that the enthusiasm to buy oil palm is what is causing the price increase. He has been working with local farmers in Akwa Ibom State, where he buys their palm fruits and turns them into oil.
The derivatives of palm oil, such as frozen pizzas, chocolate and hazelnut spreads, biscuits, and margarine, incorporate etukapan exports among others. Nonetheless, he claimed that producing palm fruit oil and developing palm trees had been challenging.
After June, he predicts that the price of edible oils will climb once more since the lack of labor will prevent an increase in palm oil production. He claims that this has an effect on palm oil production.
Many items, including cakes, frying fats, vegetable oils, cosmetics, and cleaning supplies, are made from palm oil. The majority of African nations saw an increase in the price of edible oil as a result of a supply deficit after Indonesia banned the export of palm oil beginning on April 28 of last year.
More over half of the world’s supply of palm oil comes from Indonesia. Due to the restriction, consumers in Asia and Africa had to pay more for popular edible oils such palm, soy, sunflower, and rapeseed oils. As a result, palm oil, the primary raw material, was purchased by cooking oil producers for between $1,760 and $1,980 per metric tonne. The price of the product, which had increased by more than double from $700 per tonne prior to the start of the epidemic in March 2020, was $1,490 per tonne before the Ukraine-Russian conflict erupted.
For Etukapan, seasonal palm oil price fluctuations have a significant effect on farmers’ gross margins. According to him, in the lean palm oil seasons, farmers get good prices, but gross margins are not good during the peak/high seasons between January and March.
He noted that the country would face a wave of high prices of vegetable oil in light of the supply shortage, during the summer season when harvest is low.
He acknowledged small-scale farmers face a myriad of challenges, including experiencing low oil palm yields because they use minimal input and crop maintenance.
Etukapan put the issues and challenges in the business in perspective: “Our palm oil is more expensive than that of countries such as Indonesia and Malaysia. Few days ago, I lost business to an Indonesian company because our palm oil was costlier than others. After harvesting their palm fruits, they will collect N600 per bunch. It takes 20 bunches to produce 25 litres of oil. If they collect N600, you will be paying N12,000 to produce 25 litres of oil. This makes oil very expensive.”
It is easy to see the implications of this price difference on the local palm oil industry.
He explained: “With this (the prevailing price structure), we cannot compete with exporters in the international market because they use sophisticated machines that make the process cheaper for them.
“We are using crude methods and ancient machines. Today, we still use those machines that our forefathers were using.The other thing is that the cost of purchasing oil palm processing machines is high. We cannot afford it here. It is one or two companies that have been able to afford such machines in Akwa Ibom.
“If these machines are made available to local farmers, production level will expand and at the end of the day, the oil palm prices will go down. We cannot compete favourably with our counterparts in Indonesia and Malaysia. We should take note of this.”
Experts are positive that the federal and state governments, as well as the private sector, can work with research institutes and universities to produce and use improved seedlings, techniques, and storage to realise optimal output from the three million hectares of farmland said to be available for palm oil cultivation in the country.
Nigeria has an unmet demand of 500,000 tonnes of palm oil. According to Statisca, a research portal, palm oil consumption in Nigeria amounted to about 1.72 million metric tonnes. The Economic Community of West African States (ECOWAS) sub-region has an unmet demand of two million tonnes. This presents an opportunity for Nigeria to scale up production of the cash crop to satisfy local and regional demand for much-needed foreign exchange.