Due to a shortage of supply and growing industrial demand, palm oil prices have increased by 120 percent in just one year.
According to a market survey conducted by BusinessDay, the cost of a 5-liter keg of palm oil increased by 120 percent from N5,000 in November 2023 to N11,000 this month.
In a similar vein, the cost of a 10-liter keg of edible oil rose by 120 percent this month, from N10,000 in 2023 to N22,000.
As cosmetic companies, pharmaceutical companies, and other manufacturers use palm stearin, a byproduct of palm oil, instead of tallow (animal fat) to make soaps, lotions, and medications, the demand for palm oil has risen. According to industry participants, tallow is now pricey.
The National Palm Produce Association of Nigeria’s previous president, Henry Olatunoye, stated that it is now imperative that Nigeria convert vast tracts of forest into palm plantations in order to increase the production of palm oil.
According to him, Nigeria must enact import-friendly laws to close the current 1 million metric tons of value chain deficit.
“The demand for palm oil derivatives is rising. For example, tallow, which is quite costly, has gradually been substituted by stearin made from palm oil. Stearin is used in a lot of cosmetic sectors nowadays. Additionally, there is now more demand for it from pharmaceutical businesses,” he noted.
“Climate change equally affects palm oil production. Its supply is diminished. So, while demand becomes elastic, supply becomes inelastic,” Olatunoye, who also serves as the managing director of FarmTrade Commodity Development, explained.
About 2.5 million metric tons of palm oil are consumed annually in Africa’s most populous black nation; local output is now 1.4 million metric tons, leaving a 1 million metric ton shortfall that imports should make up.
However, Olatunoye claims that importation has become challenging because of unfavorable policies and a lack of foreign cash, leaving the $1 million needed unmet.
According to data compiled by the National Bureau of Statistics (NBS) between 2019 and 2023, Nigeria spent over $600 million a year on imports, importing 1.5 million metric tons of palm oil from Malaysia alone.
According to an expert, this amount can increase domestic manufacturing.
Olatunoye stated that the nation’s daily production of roughly 4,000 metric tons of palm oil is insufficient to satisfy domestic demand.
“We need about two million hectares of consolidated and urban estates before we can attain self-sufficiency and then begin to export to other West African countries.”
Nigeria is the world’s fifth-largest producer of palm oil. Indonesia produces 50 million metric tonnes, followed by 19 million metric tonnes in Malaysia and 3.28 million tonnes in Thailand. Colombia comes in fourth with 1.9 million metric tonnes.
Eighty percent of palm oil-planted areas are either wild trees or are under the management of smallholders and medium-sized plantations, with an estimated oil production of less than 0.5 tonnes per hectare, according to the Plantation Owners Forum of Nigeria (POFON).
Nigerian farmers have also had to contend with climate change concerns, despite the federal government’s ongoing efforts to double production through the Oil Palm Development Initiative (OPDM) run by the Central Bank of Nigeria (CBN).
According to analysts, the consequences of climate change will severely impact Nigeria’s palm oil supply in 2024. Palm oil is often grown in tropical states.
According to data from the United Nations Food and Agriculture Organisation, climate change has harmed many crops since the beginning of the year, from extreme drought in northern states to floods that eroded roughly 107,000 hectares of farms in August/September 2024 across 33 food-producing states.
Large tracts of agriculture were damaged by the floods, endangering the food security of states that produce food, including Taraba, Kebbi, Niger, Sokoto, and Jigawa.
According to a survey by agricultural research firm Vestance, if successful trade policies are implemented, the nation has what it takes to boost production and compete with competitors worldwide.