Oil Palm Sector and Burden of Trade Liberalisation

Photo: An oil palm plantation

By Ebun Owoyele

The swift crash of crude oil per barrel in the international market to $43.5 should not only be a wake-up call to the Nigerian government on the need to revamp the other sectors of the economy, especially the crude palm oil sector. This can be done by increasing the internal and local production which will help meet up with the internal demand of the product and subsequently boost the export of the commodity.

In 1990, the Economic Community Of West African States (ECOWAS) launched a the Economic Trade Liberation Scheme (ETLS) among its member states with the primary objective of establishing a Customs Union aimed at the total elimination of Customs duties and taxes of equivalent effect and removal of non-tariff to protect goods produced in Member States.

Crude Palm Oil (CPO) under ETLS is classified under processed goods hence enjoys certain concession upon entry into a different ECOWAS state. The three groups of goods under the scheme enjoy the following concessions:
Total exemption from import duties and taxes; No quantitative restriction and non-payment of compensation for loss of revenue for unprocessed goods and traditional handicraft product as a result of their importation.

To however qualify for these concessions, certain conditions must be fulfilled by member states one of which being that the country of origin of such goods shall be from the community with specified percentage of value addition.

Although many of the member countries cultivate oil palms there is a need to increase potential production of palm oil in order to meet both the domestic and the regional demand, particularly the needs of ECOWAS member countries with vulnerable economies and high rates of hunger.  ECOWAS still experience a deficit of edible oil, which requires the importation of an estimate of 1.5 million metric tons per year and is foreseen to increase to some 2.0 million metric tons by 2020.

The ECOWAS region is a net importer of palm and palm kernel oils.

However, in year 2014, Nigeria alone was reported to have a deficit of over 900,000 metric tons which is about 60 per cent of the total ECOWAS current imported volume.

Despite the glaring benefits of the ETLS, certain Stakeholders of the industry have taken undue advantage of the scheme to indulge in sharp practices by importing CPO from member states through round tripping from other countries. These CPO round tripped into these member states are then imported into Nigeria under ETLS zero duty regime.

The Federal Government of Nigeria (This Day Newspaper, 3rd June 2013) confirmed the illegal flooding of the Nigerian market with large volumes of Crude Palm Oil (CPO) imported from neighboring West African nations, under the guise of the ECOWAS Trade Liberalization Scheme (ETLS)

According to the report, most of the palm oil imported from Malaysia, Indonesia and others actually end up in the Nigerian market duty-free; thereby displacing locally produced palm oil from the market and suffocating the Nigerian oil palm plantations

The article continued to report that the aggregate of locally produced and imported palm oil in these neighboring West African nations by far surpasses what they require both for their domestic and industrial consumption, therefore making the massive Nigerian market the dumping ground for these cheap CPO, which also come into Nigeria duty-free under ETLS; making it by far cheaper than the CPO produced within Nigeria.

“Nigeria”, it said, “should be producing and exporting into those countries. We should not be using those countries as transit areas. Regional trade does not mean that we should import. Neighboring West African countries import crude palm oil far higher than their needs. For Benin Republic, between the period 2003 to 2013, their production was stagnant, but their export increased by 1,018 per cent. Their import increased by 1,084 per cent of crude palm oil.”

Production Dynamics in West Africa
West Africa: Average: 90 per cent Small holders
Nigeria: 80 per cent Small holders though large chunks cannot be used in the FMCG industry .

This is the reason for slow progress

It is a known fact today that in every part of the world where agriculture is growing, it is because their governments are supporting them in various ways including the implementation of favorable agribusiness policies and practices.
In Nigeria for example, in the last one year, the government distributed 1.4 million sprouted nuts to farmers free. These hybrids Sprouted nuts are high-yielding Tenera seedlings of greater yielding capacities that will benefit and improve production.

Howbeit, this requires that the farmers have to recapitalise their plantations which, is the responsibility of the government.

As we today look at the Nigerian Stock Exchange, we are getting excited because two of the best performing stocks are from the Oil Palm Industry sector and we should encourage these companies to stay in that profile.

There is no doubt that Nigeria can become self-sufficient in palm oil production and consumption although we currently pay a higher price due to the weakened strength of the naira each time we import CPO or any other agricultural produce.
It is therefore important that if government is to encourage and promote private sector participation in its current transformation efforts in palm oil plantation development, the current lapses in the ETLS where round tripping of CPO from other countries are dumped into the nearby country and subsequently the same into Nigeria under the guise of the ETLS must be checked and eradicated.

In as much as the objective of the ETLS is to promote industrialization within the sub-region, the current practices are totally counterproductive to this objective and there is a need to have a review of the ETLS in its journey so far. Government should not ignore the cry of the industry especially with the continual falling value of the Naira against Dollar and the dire need to create jobs for our jobless teaming youths.

–Owoyele is a Lagos-based  economic analyst.

Source: ThisDay

Publish Date: 

Sunday, 25 January 2015