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Presco, PZ Wilmar, Okomu battle to dominate vegetable oil market

By on September 2, 2013

In this report about the intense but latent battle for the control of the vast vegetable  oil market in the country, Crusoe Osagie identifies three dominant players who are key to the nation’s eventual emergence as a country self-sufficient in palm oil production

Global Edible Oil Controversy

The global edible oil industry has always been subject to enormous amounts of controversy with the producers of vegetable oil in temperate western parts of the world playing up the issue of heart friendly and oil. Their claim is that vegetable oil from corn, rapeseed, olive and so on are heart friendly, while that from oil palm, largely produced in South East Asia and Africa, are loaded with saturated fat and therefore a potential source of coronary heart diseases, a claim which palm oil producing countries have labeled a mere de-marketing scheme, orchestrated to make up for the shortfall resulting from the low yielding oil plants in temperate regions, which makes oil palm comparatively far cheaper source of vegetable oil.

In Nigeria, however, the battle has been mainly among oil palm dealers broadly classified under two major categories; vegetable oil importers and local vegetable oil producers. The argument being that importers of the product are dumping the commodity procured cheaply from the South East Asian market on the nation’s fragile market, crowding out the local producers.

Vegetable Oil Decline
After leading the world in the 1960s and 1970s in palm and other vegetable oil production, Nigeria now shamefully depends on countries like Malaysia, Indonesia, Singapore and others to bridge the huge gap between demand and supply of vegetable oil in the country. More disgraceful though is the fact that Malaysia, the country, which now helps Nigeria to meet its critical domestic and industrial needs for vegetable oil, actually sent emissaries to her in the 1960s to learn the techniques of oil palm production.

Over four decades since agriculturists at the Nigerian Institute for Oil Palm Research (NIFOR) taught Malaysians how to cultivate oil palm, the table has turned much to the shame of the managers of Nigeria’s agricultural sector. According to global market statistics, Malaysia currently earns more foreign exchange from its oil palm industry across the value chain than Nigeria earns from the exploitation of its hydrocarbon resources. With over 300,000 tonnes per annum gap between local production of vegetable oil and demand, a lot clearly needs to be done.

Although the major local producers of palm oil as listed by the Plantation Owners Forum of Nigeria (POFON) include Okomu Plc, Presco Plc, Dansa Agro Plantations Limited, PZ Wilmar, Real Plantation, A and Hatman, Siat Nigeria Limited, IMC Limited, JB Farms Limited, Saturn Farms and Aden River, a tense but subtle market contention is currently going on between the top three companies in terms of plantation size, with claim and counterclaims that some of the local producers only set up their farms to grant them credibility before the government, in order for them to obtain the leeway for massive importation of Crude Palm Oil (CPO).

There have also been claims that the older players have enjoyed monopoly of the vegetable oil market in the country for years and having become accustomed to the high margins resulting from their firm control of the market are unwilling to yield grounds to new players.
“The easy excuse they can give is that other players apart from themselves are mere importers, uninterested in development of local plantations. But when we show them our plantations and the huge investments we are making in the planting of new oil palm seedlings, they say it to disguise our penchant for importation. But I wonder who invests these huge funds, planting extensive farms amounting to thousands of hectares, just as an excuse to import,” an operator told THISDAY.

The Big Players
In the emerging landscape of the palm oil market, the leading players have increased from the initial two dominant companies- Okomu and Presco-quoted on the Nigeria Stock Exchange, to three major local producers with the entry of the world’s largest oil palm producers Wilmar into the Nigerian market in partnership with renowned consumer goods manufacturers PZ Cussons. While Presco has a total about 15,000 hectares of oil palm plantation, Okomu plantation is well over 20,000 hectates and PZ Wilmar has over 30,000 hectares, although much of the PZ Wilmar plantation currently consists of very old palm trees, which the company is uprooting and replacing with hybrid varieties.


Presco Oil Palm 

In the 1970s, Bendel State government, at present Edo and Delta states, initiated a programme for the development of oil palm plantations with financing from the World Bank. This resulted in the incorporation of the Oil Palm Company Ltd (OPC) owned by the state. The company established an oil palm plantation called the Obaretin Estate and planted 1,150 hectares between 1975 and 1980. The plantation is located in the Ikpoba-Okha Local Government Area of Edo State at Km 22 on the Benin City-Sapele road. Institutional investors out of Europe called the Siat Group became involved in Presco in 1991, at which time there were 2,700 hectares planted at Obaretin Estate. Under Siat’s management, a new expansion programme commenced from 1993 and additional 3,000 hectares were planted at Obaretin Estate. The total planted area at Obaretin as at today is 5,631 hectares.
In 1996 Presco acquired the 2,780 hectare Cowan Estate at Ajagbodudu, Delta State, from the Delta State Government-owned Oil Palm Company Ltd. 
In 2002, Presco acquired another 6,000 hectares from Edo State government and further 1,500 hectares from other parties making a total of 7,500 hectares.

The company’s operations are fully integrated with plantations, palm oil mill, palm kernel crushing plant and vegetable oil refining plant. It is the only fully integrated oil palm operation in Nigeria. Presco, which is one of the only two agriculture companies quoted on the Nigeria Stock Exchange (NSE), is one of the largest employers of labour in Edo and Delta states, with a total of about 2,500 employees. Indirectly, Presco’s operations positively impact on the livelihoods of many more people through transport contracts, construction contracts, fresh fruit bunches and kernel purchases from farmers, as well as by the company being a large consumer of goods and services.

The company also initiated an out-growers scheme in collaboration with Edo State government. Under the scheme, smallholder farmers will prepare their lands for oil palm cultivation, while Presco supplies farm inputs with subsidy from the state government to these small farmers. The oil palm giant also provides the technical knowhow to ensure a good harvest while also assuring the small-scale farmers of a guaranteed market for their produce at prevailing market price upon harvest.
Currently, Presco’s total planted area is more than 11,351 hectares of oil palm. and new planting in Ologbo, Delta State is on-going. So far 3,143 hectares have been planted (1,000 hectares in 2011) and over 1,200 hectares budgeted for 2012.

Presco also operates a vast palm oil processing and refining factory, where the output from the various plantations is transformed from fruits to palm olein deodorised (vegetable oil) and palm sterin. It does not stop at this first stage of processing. It further refines these processed oils into various vegetable fat products, used widely in the cosmetic industry, pharmaceutical industry and in food processing companies.

This initiative has helped companies such as Friesland Wamco, Nestle, Unilever, Cadbury and several other multinationals to cut down the volume of this specialised fat, which they import as input for the manufacturing of their various industrial products, thereby saving scarce foreign exchange.

Presco’s palm oil milling capacity is presently 48 tonnes of fresh fruit bunches (FFB) per hour; the palm kernel crushing plant operates at 45 tonnes per day; the refinery has recently been increased to 100 metric tonnes per day while the fractionation plant capacity and refined products capacity is 60 tonnes per day.

Okomu
The Okomu Oil Palm Company was established in 1976 as a Federal Government pilot project aimed at rehabilitating oil palm production in Nigeria. At inception, the pilot project covered a surveyed area of 15,580 hectares out of which 12,500 hectares could be planted with oil palm. It was incorporated on December 3, 1979 as a limited liability company.
As part of efforts to shore up its revenue base, the company acquired and installed a 1.5-tonne fresh Fruit Bunches /hour mill in 1985 to begin to process its FFB. Prior to the installation of the mill, the company derived its revenue from the sale of FFB.
By December 31, 1989, 5,055 hectares of the estate had been planted. The company also began infrastructural developments on the estate at that period. The facilities included office blocks, workshops/stores, staff quarters, a petrol station, a powerhouse and a primary school for children of the company’s staff members.

In 1990, the Technical Committee on Privatisation and Commercialisation (TCPC) privatised the Okomu Oil Palm Company on behalf of the Federal Government of Nigeria. It has since grown to become Nigeria’s leading oil palm company with thousands of hectares of mature palm, a young extension of 4,000 ha of rubber, and a palm oil mill of 30 tons per hour capacity.

The company has consistently posted profits in the last 10 years, a period during which most other agricultural initiatives in the country had either folded –up or were performing sub-optimally. What is most inspiring is not just the growth and profitability of the company but the fact that Okomu Oil Palm Company Plc is ranked 10th among listed companies with the largest turnovers quoted on the Nigerian Stock Exchange (NSE). It is the only agric-business in the NSE’s top 16 companies with the largest turnovers. According to the June – July issue of the Bottomline magazine, Okomu Oil Palm Company Plc is the ninth company with the highest profits before tax among companies quoted on the NSE, and the only agro-business on the Exchange’s top 16.

Today, what is now known as Okomu Oil Palm Company Plc has transformed into an economic success, earning presidential commendation and recording over 300 percent rise in profit after – tax (PAT) from the preceding year. Okomu benefits from the quality management provided by its main shareholders and technical partner (SOCFINAF). With a 53.32 per cent share in Okomu Oil Palm Plc, SOCFINAF is the biggest single shareholder in the company. SOCFINAF brings into Okomu Oil Palm Plc a little under a century of sound acclaimed technical expertise in the world stage. SOCFINAF, Luxemburg, is a global player in the cultivation of oil palm, rubber, coffee and tropical flower. SOCFIN S. A. founded in 1912 was the first industrial company to plant oil palm in Africa and Indonesia. It has ongoing plantation operations in Cote D’ivoire, Liberia, Guinea, Cameroon, Kenya and Indonesia.

PZ Wilmar
PZ Wilmar is into both palm oil processing and oil palm plantation said to be worth over $500 million but only the palm oil processing and trading arm of PZ Wilmar’s investment in Nigeria seems apparent, obviously because they are located in the city.
However, a visit to the 5,500-hectare, previously defunct Calaro oil palm estate, formerly owned by Cross River government and recently bought by PZ Wilmar; the 12,805-hectare Kwa Falls oil palm plantation, formerly owned by Obasanjo farms and also taken over by the same company; the 5,450-hectare Ibiae oil palm estate as well as another 8,000 hectares estate in Biase, which is still being negotiated, will convince even the most cynical critic of PZ Wilmar’s commitment to long term business that stimulates massive economic growth and development. 
A farmer and indigene of Betem Village in Biase Local Government Area, Cross River State, Mrs. Hannah Onda, says her life tells the story of the impact that the company is making on the lives of ordinary Nigerians.

“I am a farmer; I am married with four children; two boys and two girls. It was a very tough life for me before I was engaged by PZ Wilmar as one of the workers in their oil palm nursery here in Ibiae. With this company, I am guaranteed a stable and reasonable income at the end of every month and I don’t have to rely only on my little farm for the sustenance of my children,” Onda told THISDAY.

She said since she started working with PZ Wilmar, apart from the regular income, which has become additional money for her, she has also learnt farming skills from the company, which has also helped her to improve the performance of her personal farm where she grows cassava, maize and other arable crops at subsistence level.

The General Manager in charge of the company’s oil palm plantations, Mr. Lee, said after they procured the estates they realised that the existing trees were too old and therefore they were no longer yielding optimally and so they had to be knocked down and replaced.
“The trees were too old and they were not the best in terms of genetic quality, so we had to replace them. They were producing between 5 and 6 tonnes of fresh fruit bunches per hectare and that was by far too low compared to up to 30 tonnes of fresh fruits bunches that are obtainable from the trees we are now planting,” Lee explained.

Agriculturist and retired Permanent Secretary of the Cross Rivers State Ministry of Agriculture, Dr. Sam Ekpe, who commented on the ongoing investment of PZ Wilmar in the state’s oil palm plantation industry, said any individual or company that is investing in the harsh terrain of agriculture in Nigeria must be encouraged.
He said to have Wilmar, which is the biggest oil palm producer in the world, investing actively in the country’s oil palm plantation is a development that must be seriously celebrated.

“Wilmar has the Roundtable on Sustainable Palm Oil (RSPO) certification and they are a responsible oil palm plantation company, they are targeting about 100,000 hectares of oil palm cultivation in Nigeria and as we speak they are already in possession of over 30,000 hectares of plantation, which they are massively replanting, while the Cross River State government is seriously working out the remaining 70,000 hectares to ensure the company meets the target it has set for itself,” Ekpe said.

 

 

[This Day]