Nigeria Seeks to Play an Enlarged Role in Global Palm Oil Market

Palm oil is one of the most important vegetable oils in the world today and has been for some time. The oil, derived from the fruit of oil palms, has found uses in everything from food manufacturing to biofuels for energy generation and even in beauty products. Nearly every cosmetic cream, bath soap, or hair shampoo has palm oil in it via one of its many derivates. As a result, global demand for the vegetable oil grows every year, creating a market for countries that can ramp up production.  

Nigeria has historically been a major producer of palm oil. From the 1930s to the early 1960s, the country was the world’s largest exporter of palm oil. According to PWC, in the period Nigeria was responsible for over 43% of the global market share of palm oil. However, the country’s shift in the late 1960s/early 1970s from an agriculture-based economy to one centered around oil and gas saw the country’s production stagnate or even decline. In the late 1960s, Indonesia and Malaysia overtook Nigeria as the world leaders in palm oil production. This has remained the case ever since, both countries are now responsible for as much as 80% of global output between them.  

Despite this, Nigeria remains among the top five producers of palm oil, ranking fifth behind the aforementioned South-East Asian countries, as well as Thailand and Colombia. Nigeria’s 1.4 million metric tonnes (MT) make up about 2% of global output. A major reason the country has remained one of the world’s largest producers is that many species of palm fruit are naturally occurring in Nigeria, and the country possesses millions of hectares of tropical forests within which the palm tree thrives. Despite these advantages and the high production figures, Nigeria remains a net importer of palm oil.  

A vast majority of Nigeria’s over 200 million-strong population consumes palm oil as part of their diet, with many local delicacies built around it. In addition to its being a native species in the country, palm oil is easy to stabilize, flavourful, relatively cheap compared to other vegetable oils, and semisolid at room temperature lending it to natural preservation. All of these qualities mean that its demand in Nigeria is high, exceeding the country’s production; Statista estimates that Nigerians consumed 1.76 million MTs of palm oil in 2022, exceeding the 1.4 million MTs produced.  

Nigeria’s relatively low palm oil production can be traced to the fact that the bulk of the country’s production is dominated by smallholder farmers, who account for up to 80% of all production. Hence, production is very fragmented and localized, with few major plantations and only two major industrial-scale producers in Okomu and Presco.  

Harvesting techniques in small-scale palm farming tend to be outdated and manual, increasing the possibility of loss through wastage during the process. There is also little investment in extraction and processing technology, with few palm oil mills operating in the country. This is changing in recent years. There has been interest from major food manufacturing companies in investing in the country’s upstream and midstream sectors.  

PZ Cussons International and Wilmar International have co-operated to invest US$650 million in plantations and processing facilities, while Dufil Pharma has acquired thousands of hectares of land for the purpose of raising major plantations. The major Nigerian producers, Okomu and Presco may have struggled in recent months due to the high cost of sales stemming from the country’s cash woes but have steadily produced more and seen profits rise in recent years. The Russia-Ukraine conflict has played a role in boosting productivity in the Nigerian market, as the loss of the popular sunflower oil, of which both those countries are leading producers, has seen a boon in palm oil derivates as replacements.  

For Nigeria’s palm oil production to reach the heights that it has the potential to, government involvement is needed. There must be a shift from the present alignment which sees smallholder farmers dominate the market, to industrial-scale farming. Government policies could help farmers scale up production, as well as encourage newer farmers to join the palm oil industry. There must also be a mechanization of the industry, with the use of modern techniques and extraction technology. Protection must be offered to farmers; companies like Okomu have complained about clashes between their workers and illegal loggers, who often operate in the same area and sometimes steal palm products.  

There is a danger that comes with industrial-scale plantations, which is mainly the destruction of tropical forests for palm oil farming. Countries like Malaysia and Indonesia, and increasingly West African countries in the Guinean-Congolian forest zone, have faced issues with forest loss due to clearing for plantations. This doesn’t just destroy the area’s biodiversity, but can also serve to alter the climate, radically transforming the region.  

Extensive farming rapidly degrades the soil, as palm trees are nutrient-intensive and deplete nutrients needed by other trees. There is also widespread usage of fertilizers in palm farming, and runoff into nearby rivers and other water bodies is common. This soil degradation makes the soil unsuitable for any other type of farming, and fertilizer runoff poisons the waters that local populations rely on for both drinking and food via fishing. Deforestation is also a major contributor to climate change as it eliminates the forests which serve as vital carbon sinks.  

It can and would be argued that palm oil production in Nigeria is not yet at the scale at which it has become an environmental net negative. In fact, increased farming should be encouraged in countries like Nigeria, Benin, and Ghana as palm oil can serve as both a steady means of livelihood for families and a source of income for the countries. However, this nascent period is the best time for those countries to explore the possibilities of sustainable palm farming and build the industry accordingly.