Nigeria’s forex (FX) policies have given the palm oil industry the incentive they need to take advantage of local demand, according to Tominiyi Ramon, an analyst from Vetiva. This comes on the back of palm oil importers being excluded from accessing the central bank's FX window.
Ramon says he estimates 320 million dollars were spent on the import of palm oil in 2015.
“Sometime in 2015 amid the crude oil earnings and the consequence impact on our reserves, one of the FX policies introduced by the CBN was to exclude some 41 items from the official window, palm oil made that list."
“What this means is that importers will have to source FX from autonomous sources - you would expect the overall cost of importation to tipper in both volumes going forward. CBN policies on the FX have impacted these imports and will likely continue to impact it going forward,” said Ramon.
In Nigeria, palm oil is a basic food and has several uses besides cooking, says Ramon so the demand is quite high.
"Before now there was no major incentive for local producers given that the price of imported palm oil product is more competitive, however we think that the industry is currently taking a new shape that might incentivise the local producers."
He adds: "Going forward the importation of palm oil might be challenging so we think this could cut supply and push up prices and once this happens you will expect the local production to tap into the opportunity."
Presco and Okomuoil have done well in this environment; Ramon explains that their advantage is their large scale operations.
Presco has done well in this market because it is a leader and has had years of experience, large scale operation and technical support from international parent companies.
"The yields from the plantation [Presco] are actually beyond what you can get from any other plantation in Nigeria. Okumo specialises in the off stream segment and is the market leader in that space, this company has the largest oil palm milling in Nigeria and produced,” said Tominiyi Ramon, analyst at Vetiva.