With a population of more than 1 billion people, the Sub-Saharan Africa palm oil market has been growing substantially in the last ten years. Despite having local palm oil production, the domestic requirement is greater than the region can supply by its own. In 2019, African countries produced about 2.79 million MT of palm oil but it is not enough to satisfy the domestic requirement of about 7.31 million MT. As a result, imported palm oil has a very important role to play in the market. Palm oil import into the region has grown tremendously by CAGR of 6.02% over the 2010-2019 period.
Fig 1: Sub-Saharan Palm Oil Import Growth 2010-2019 (000 MT)
Source: MPOB, Oil World
Is Malaysian Palm Oil losing market share in Africa?
To answer the above question, one has to analyse the performance of MPO import to the region in the last ten years. Malaysian palm oil export to the Sub-Saharan Africa region has increased in tandem with the increase in total palm oil import from 1.335 million MT in 2010 to a record high of 2.433 million MT in 2017, although it regressed a little to 2.326 million MT in 2018 and 2.015 million MT last year. Malaysia had been the leading exporter of palm oil into the region until 2012, reflecting Malaysia’s large production and refining capacities, its small domestic market for palm oil, and an export tax structure that favours export of palm oil products rather than CPO during that period. However, starting from 2013, with its ever-increasing palm oil production, Indonesia palm oil import dominated the region until 2015, when Malaysian palm oil regained the upper hand until 2018 before IPO overtook MPO again last year.
Fig 2: Sub-Saharan Palm Oil Import by Exporting Countries (000 MT)
Source: Oil World, MPOB
Other countries palm oil can be referred to palm oil produced by West African countries estimated to be about 2.8 million MT last year. Nigeria was the biggest palm oil producer in Africa last year with 1.22 million MT. There are other producers in the region which include Ghana, Ivory Coast, Cameroon, and few others with very minimal production. Among those countries, the only net exporter in the region is Ivory Coast with 510,000 MT production and 282,000 MT exports in 2019 (Oil World). Please note that most of the palm oil imported from Malaysia and Indonesia by countries like Benin and Togo are rerouted to neighbouring West African countries due to favourable tax structure. It is also the same case with MPO imported by Kenya and Mozambique that are being rerouted to the neighbouring land-locked countries in the East Africa and Southern Africa region.
Fig 3: Palm Oil Market Share Sub-Saharan Africa Region (2017-2019)
Contributing Factors to Fluctuating MPO Market Share
At a glance, it seems that from 2010 to 2019 Malaysian palm oil has lost its market share to Indonesia. However, as Fig 2 above shows Malaysian palm oil export performance in terms of market share has been fluctuating between 36.4 % and 45.4 %. In fact, MPO had a larger share in the Sub-Saharan Africa market than IPO in 6 of the last 10 years. Fluctuation in MPO market share can be attributed to the lower price offered by other exporters and the availability of palm oil that can be supplied by the exporting countries.
The export performance of palm oil depends on both demand and supply factors. Cost is definitely the main factor that drives the volumes of imports. Other factors influencing the demand includes supply availability, population and income growth, and ever-changing consumer tastes and preferences. Another important factor that must not be overlooked is government policy that always succumbed to pressure to increase palm oil import duty on the pretext of supporting domestic production.
Shifting products demand
In the 2010-2012 period, most of MPO exported to Sub-Saharan Africa are in the form of RBD palm olein and cooking oil but after the implementation of the new export policy by the Malaysian government, products requirement have shifted towards CPO. Import duties structures imposed by importing countries that normally favors CPO also play major roles in this transformation. In the past ten years, the refining industry in Sub-Saharan Africa has expanded rapidly due to increasing demand from a growing population and better economic conditions. In terms of percentage, in 2011, import of Malaysian CPO/CPL constituted merely 3.8% of total MPO import. However, the percentage of CPO imports has increased to more than 40% of total palm oil imports in the past few years.
On the other hand, other palm oil products especially packed cooking oil has dropped from a high of 483,000 MT in 2011 to just 107,000 MT in 2019. The demand for CPO/CPL comes from several countries that have high refining capacities such as Nigeria, Ghana, Kenya, and Mozambique. Other countries such as Benin, Togo, Angola, and South Africa prefer to import more RBD palm olein than other products. Tanzania which used to be one of the major importers of CPO has completely changed its palm oil import requirement towards RBD palm olein after the government increased CPO import duty from 10% to 25% due to pressure from local oilseeds producers.
Strategies to retain or increase market share
- Free Trade Agreement
Tariff barriers still considered hindering trade relations between Malaysia and Africa. Throughout the years free trade agreements have grown in importance and scope. Free trade agreements don’t just reduce and eliminate tariffs, they also help address barriers that would otherwise impede the flow of goods and services; encourage investment; and help market access. At the moment Malaysia does not have any free trade agreement with any African countries.
When it comes to reducing tariffs and bolstering trade, Malaysia could learn something from Indonesia. In 2019, the Indonesian government has signed the Preferential Trade Agreement (PTA) with Mozambique, removing tariffs for hundreds of products to boost trade volume between the two nations. In addition, Indonesia is negotiating with the Southern African Customs Union (SACU), which includes South Africa, over a possible PTA designed to lower tariffs. South Africa is also open to exploring the possibility of forming PTA with Indonesia if the progress of the Indonesia-SACU PTA encounters obstacles.
The Sub-Saharan region comprises more than 40 different countries. Malaysia would not have to negotiate for lower tariffs with each country individually. It could negotiate with a bloc, for example with The African Continental Free Trade Area (AfCFTA), and streamline the process, unlocking business opportunities much quicker than it would by negotiating with each nation one-by-one. (To read more on opportunities presented through AfCFTA, please refer to http://mpoc.org.my/african-continental-free-trade-area-afcfta-its-impact-on-edible-oil-trade/)
- Investment in Oils and Fats Sectors
In 2011, with investments of $19 billion Malaysia was Africa’s most important Asian investor, ahead of China and India in terms of the size of its foreign direct investment (The Diplomat, May 2016). But currently, in 2020, our investment in the region has fallen way behind our neighbours Indonesia and Singapore. A good example is the growing presence of Wilmar in oils and fats business in African countries ranging from palm oil plantations, mills, refineries, and food manufacturing. Another example is the rise of Indomie, an Indonesian product that uses palm oil as one of its ingredients, to become a household name in Nigeria owing to its delightful taste and wholesomeness. The noodle manufacturer PT Indofood Sukses Makmur partnered with the Nigerian food company Dufil Prima Foods back in the late 80s and opened the country’s first instant noodle factory. Today, the company runs the largest instant noodle factory in Africa, generating more than USD 600 million a year.
Malaysian palm oil traders need to consider setting up joint ventures and partners players from the Sub-Saharan Africa region if they are serious to capture more market share in the country’s oils and fats business.
Furthermore, Malaysian palm oil players should also consider investing in storage, bulking, and manufacturing facilities in the region to facilitate the production and distribution of Malaysian palm oil. Hotel, restaurant and café (HORECA) sectors are another segment that is fast growing and could yield a very high return. These venture will not only help in accelerating the local economy through the opening of new jobs, but will also increase awareness, demand, and purchasing power of the African people for Malaysian palm oil.
Way Forward
The Sub-Saharan African palm oil market is growing, driven by the extensive application it can offer for both food applications and industrial uses. Furthermore, rising processed food and fast food consumption due to changing consumer preference and taste, is expected to have a positive impact on the African market.
With a population size of more than 1 billion people, Malaysian must view countries in the Sub-Saharan African countries with optimism and as places of opportunities for potential collaboration in areas of mutual interest and benefit. Despite Malaysia’s business presence in Africa, many other Malaysian investors in the oils and fats business are still relatively unaware of the investment opportunities in Africa due to lack of information. This is the area where government agencies such as MPOC can play a role by providing guidance and assistance to the industry players who want to venture into this market. MPOC can also bringing buyers from the region to meet palm oil suppliers from Malaysia through various programs organized by the MPOC regional office or MPOC HQ office in Kuala Lumpur.
As evident from the MPO export volume demonstrated above, Malaysian palm oil has managed to retain its market share in the Sub-Saharan region despite competition from other exporting countries and locally produced edible oil. Malaysian palm oil players should take this opportunity to make further inroads in the Africa’s fast-growing market.
Prepared by Iskahar Nordin
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