Untapped Potential of Oil Palm

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Tuesday, September 25, 2018 08:47 AM / FBNQuest Research                                                                                          

The narrative on agriculture is gradually changing, and the sector has the potential to become the economy’s new backbone. Over the past four years, agriculture has posted uninterrupted quarterly growth, with crop production emerging as the leading contributor to the sector. Oil palm, a cash crop, falls within this segment. 

Last week, we visited an oil palm plantation in Benin spanning 33,000 hectares, with an estimated 160 palm trees per hectare. The derivatives from this cash crop are numerous; they include cooking oil, cosmetic products, personal hygiene products and industrial products (such as lubricants and paint) as well as rubber amongst others.                                                                                                                  

Aside from increasing domestic supply of these diversified products which could reduce pressure on the country’s import bill, this crop can provide substantial fx revenues via exports. 

Based on data from the CBN, oil palm production grew at an average of 4.2% y/y in 2016 but represented just 2% of crop production in the same year. 

As with most sectors of the economy, power supply issues pose as a challenge to the oil palm plantation in Benin. Power is self-generated and annual diesel consumption is estimated at 400,000 litres which translates into N80m (US$261,000). However, there are plans to generate biofuel for better energy mix and a more cost-effective approach.

 

Total production of crude palm output (tons)

Proshare Nigeria Pvt. Ltd.

 

Sources: Okomu Oil Palm Company; FBNQuest Capital Research

 

There are ten host communities bordering the plantation and they benefit from employment opportunities. 1,200 farmers are employed from these host communities and during harvest seasons at least 1,800 farmers are engaged. Over the next three years, the aim is to have 3,500 farmers within the plantation. 

There are plans to develop a second mill within the plantation with a 60, 000-75,000 ton milling capacity per year, expandable to 200,000. This project is expected to be completed by 2020. 

 

Proshare Nigeria Pvt. Ltd.

 

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