‘How Nigeria can meet Malaysia, Indonesia in oil palm production’

Emmanuel Ibru is the Chairman of Plantation Owners Forum of Nigeria (POFON) and Chief Executive Officer (CEO) of Aden River Estates Limited. In this interview with selected journalists, he gives some of the reasons why the country is lagging behind in oil palm production and suggests ways the country can catch up with big producers […]

Emmanuel Ibru is the Chairman of Plantation Owners Forum of Nigeria (POFON) and Chief Executive Officer (CEO) of Aden River Estates Limited. In this interview with selected journalists, he gives some of the reasons why the country is lagging behind in oil palm production and suggests ways the country can catch up with big producers like Malaysia and Indonesia.

Nigeria is the fifth-largest oil palm producer but contributes less than two per cent of about 75 million metric tonnes produced worldwide. Can the market share be scaled up?

Nigeria has moved from number one in the 50s and 60s to a distant fifth. You now have countries like Columbia and Thailand coming ahead of us, not to mention the mega ones like Indonesia and Malaysia.

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We can scale up, but it requires more effort, hard work and adequate capital. To develop one hectare of oil palm, you need between $4,000 and $5,000. Also, such investment requires patient capital because the gestation period is four years. Full commercial production commences in year five to six. This is when a proper revenue stream comes on.

One thing is access to finance, and the second is ensuring availability of land. We have the land, but the challenge is how to take peaceful possession of the land. Even potential investors with requisite financial capital find it difficult to acquire land, though some states like Edo, through the Governor Obaseki-led oil palm initiative, are trying to ease the process.

Also, commercial banks are extremely reluctant to accept land assets in rural areas as collaterals. They usually insist on assets in state capitals.

Do we have the manpower to scale up to number one again?

We have the labour. The problem, however, is encouraging the younger generation in the rural areas, especially the low-skilled population, to work on the farm, especially with the advent of social media and the glorification of the ostentatious lifestyle of internet fraudsters.

However, we could also benefit from transfer of information and technology from the likes of Malaysia and Indonesia.

Oil palm is a more labour-intensive sector. Nigeria has been involved in palm production for hundreds of years, and in modern production of oil palm, for over 50 to 60 years. We have the Nigeria Institute for Oil Palm Research (NIFOR), Benin City, which is capable of training people. We have a pool of experienced plantation managers and mill engineers who have the capability of passing the knowledge unto the younger generation. So, from that point of view, we do not have too much of a problem.

What are Malaysia and Indonesia doing right?

Malaysia has an oil palm council. Every other leading producer of oil palm in the world has an oil palm council and the council basically formulates policies for the industry and ensures implementation.

Nigeria is the only major producer that does not have a council. If we have a council with members drawn from all stakeholder groups and government representatives from the customs service, research institutes and members down the value chain, including the vegetable oil producers, we will clearly have a vision and monitor what is happening in the industry with a view to ensuring productivity and best practices.

What is the attitude of the government to the idea of an oil palm council?

We have not made a formal application, but POFON is planning a national discourse in the next two to three months, and we will assemble financial institutions, research and development institutions, the customs service, other government agencies, smallholders and vegetable oil producers, as well as everybody that has an interest in oil palm. We will come up with a road map for the industry. For instance, there have been issues about smallholder financing, and what we have to understand is that financing small-scale owners in tree crops is totally different from financing smallholders for cereal crops like rice or maize. The gestation period for oil palm is four years, and you cannot apply the same kind of funding mechanism to oil palm.

We have a lot of smallholders right now, but even big players that have financial muscles find it difficult to come into oil palm because of the capital involved. Even if they have the capital and access to land, they have to go by the roundtable for sustainable palm oil initiative and that means that you must comply with standards of environmental and social impacts. That means reaching an agreement with every single community that will be on that land and you know that if you are farming 10,000 to 50,000 hectares, you are going to have many communities on it.

Again, once you have been given an allocation, there must be a way for the government to guarantee you free access without communal challenge. Everybody today realises the worth of land.

Another thing is the question of, on who the ownership of the land is vested? By the Nigeria Land Use Act, if I recall correctly, the governors are the ones that sign the Certificate of Occupancy (C of O), and they have the right to revoke them at any time.

What else do Malaysia and Indonesia do that make them world’s largest producers?

They invest in research and development guided by the councils, and allow allocation of funds to intending farmers. For instance, export taxes go to the government and a part is allocated to the oil palm industry through the councils. For instance, today we talk about finance and the problems associated with development, but there is a 35-per cent duty and levy on importation of crude palm oil into Nigeria.

At no point in time has POFON said that there should be a ban on the importation of crude palm oil, but a portion of the revenue derived from those levies should be directed to the oil palm industry, and from there, you can fund research and development, and you can give out loans to intending investors with suitable terms. Maybe the ideal loan for an oil palm investor is a 10-year loan with a three-year moratorium on principal repayment and two to three per cent interest rate. In Malaysia, that is what has been going on.

Will that be part of the proposed national discourse?

By the grace of God, it will come under a topic on financing. As I said, what we need to do to increase production is to get more people involved in oil palm. The big players have capacity, but even every organisation gets to a stage where even if you allocate all the land to it, there is a limit to how far it can go.What we need to do is to encourage more small and medium-scale plantations to scale up.

In scaling up, it is necessary for both small and medium-scale farm holders to be encouraged. For instance, if you have an existing 500-hectare plantation, we want to help you get it to 2,000 or 3,000 hectares. There are many people who have 300, 500 or 1,000 hectares.

The CBN once said Nigeria should be making about $20b yearly from oil palm. Can we still do it?

Unless all these problems that we have mentioned are addressed, we cannot. But if they are addressed, yes, we can. Getting to the level of Indonesia and Malaysia is a big task. But there will always continue to be an increase in demand for palm oil worldwide and in Nigeria, in particular, because of the population growth rate. Our investment in oil palm is not matching the rate of our population growth. Before we can talk about export, we must bridge the gap between demand and supply at home.

What is the place of technology and improved varieties of oil palm planting materials?

What we have in Nigeria today is a lack of trust in planting materials by NIFOR, not because NIFOR materials are not good.

Why lack of trust?

You need to be absolutely sure that what you put into the ground is the right material when you are making an investment that will last for 30 years. About 15-20 years ago, NIFOR had problems with the production of its materials and that created a credibility problem. Now, from what we understand, it has got over that problem. But it is very difficult for an investor to take a risk without being absolutely sure that the risk is calculated. And unfortunately, because of the gestation period, you have to wait for about seven to 10 years after planting to see the veracity of the claim.

Also, it may interest you that I just commissioned a large-scale oil mill built locally. It is up and running, made by Nigerian fabricators. Of course, certain components came from abroad like the press and motors, but everything that could be fabricated locally was done here, including the sterilisers, digesters and clarification units. So, when it comes to technology, we have people that can do it, and we have to help them to improve on what they can produce. We are not there, but tremendous progress has been made over the last 20 years.

Has large-scale smuggling of crude palm oil through the Benin Republic border reduced?

I do not have figures to verify, but this year, two things have happened. One is that the price of palm oil worldwide has gone up. So, palm oil, as of the last time I checked, was about $970 per tonne and the naira is devalued.

Our current price is competitive with that of imported palm oil provided importers pay the legal tariffs. So, because of that, it has discouraged smuggling to some extent. This is what is believed.

What can the government really do to help investors in the industry?

We have to rejig the strategy to allocate or facilitate funding to small and medium-scale farmers considering the gestation period of oil palm trees. Really, policies have come up without the inputs of POFON and other oil palm associations that control the small-scale farmers.

CBN has its real sector support fund and that fund, if you read it on paper, is exactly what we require. It provides for funding for up to 10 years with a three-year moratorium on principal repayment, nine per cent interest yearly, but the problem is that the real sector support fund does not belong to CBN. The CBN real sector support funds are from the commercial banks’ cash deposit ratio with CBN.

In the past, CBN did not allow banks to lend that money out. It’s the cash reserved. Now CBN has said, “rather than your money lying fallow here with us, we want to boost investments in the real sectors. You can lend that money to companies that want to invest in the real sector, be it agriculture, infrastructure and development.”

But the banks, on the pages of newspapers and electronic media, key into it and say the money is available. However, when you actually go to them, they will tell you straight away that they are not ready to invest in any project for more than five years.

So, nothing has changed and even if you can convince them, you have to be an AAA-rated credit person because they do not want to take the risk of losing their reserve with CBN and CBN will also look into the profile of the borrower and approve.

And even with that, a lot of banks do not want to invest in green projects, but already existing ones. But the question is, who funds me to get to that stage?

How will you describe the oil palm business environment?

Some of the challenges are the same with every other business, such as infrastructural and transportation challenges, and scarcity low-skilled labour in the rural areas. People migrate from rural areas into the cities and secondly, the advent of social media, from my point of view, is a challenge. A lot of the youth today see what is happening in cities and they want to have all the good things of life. However, they are not ready to work for it. For instance, in my community, I have a problem with labour on a regular basis, because most of the youth there do not want to do the work because they complain that it is too difficult. And secondly, they see their friends who move to the city to do frauds and come back regularly with cars, gold chains and they entice them away. So, it’s a big problem.

You decided to invest in oil palm while most of your contemporaries prefer oil and gas or others. What influenced your decision?

Aden River Estates was actually incorporated when I was quite young. We were the first private indigenous investor in large-scale oil palm in the Ibru Group. It was formed in 1969 with just about 500 hectares, which were developed by internally generated funds and in the late 70s/80s, we acquired more land, which were 2000 hectares.

To come back to your question, I as an individual see the potential for agriculture in the country. We have the population of 200 million people and we must eat. I see no reason to spend one penny of our hard earned and scarce foreign exchange on anything that we can produce locally and we can produce food locally. If we are going to spend scarce foreign exchange on agriculture, it should be on anything that will increase the value of what we produce such as storage facilities, packaging and refining equipment.

To some extent, CBN has tried from that point of view by listing items that you cannot access foreign exchange to buy, but we should be even more stringent.

Are you planning actively now to hold proposed oil palm discourse?

We have already started. We are planning in conjunction with our Executive Consultant at POFON, Alhaji Fatai Afolabi, who is probably the foremost person in the oil palm in Nigeria now and vastly knowledgeable. Probably before the end of August, we will come out with a statement.