For Nigeria, Africa’s largest economy and biggest crude oil producer, the dual shock of the pandemic and a collapse in oil prices threatens to drive the country into a deep economic downturn. A crash in oil prices led the authorities to devalue the Naira in March, and further adjustments are expected in the months to come.
President Muhammed Buhari on March 29, 2020, declared a total lockdown in the Federal Capital Territory, Lagos State, and Ogun State. The national lockdown is having an economic effect that has led to the tightening of credit access to farmers, limited access to transport services to transport food, and border closures limiting food imports. These constraints have a ripple effect on food production and transportation, leading to an increase in food prices and limiting the population’s access to the food supply. Closing of the country’s border and restriction of goods movements resulted in less availability of palm oil in certain parts in Nigeria.
Nigerian Palm Oil Market
In Nigeria, the palm oil market size is huge and growing. Local producers are not able to satisfy the requirements of the food industry and households. CPO usage in Nigeria is either deemed to be Technical Palm Oil (TPO) or Special Palm Oil (SPO) based on how it is processed and the quantity of free fatty acid. TPO is low quality palm oil, and it is processed for meal preparation by households, hotels and caterers and direct sale as unprocessed oil, while SPO is premium grade palm oil, which is processed for use in the food industry and produced by large mills and refined by refineries, and mostly imported from Malaysia and Indonesia.
With a population of 200 million by the 2019 census, Nigeria would require annually 2.34 million MT of vegetable oils and fats to meet the domestic requirement for food and non-food uses. Nigeria has been the largest consumer of oils and fats in Sub-Saharan Africa and the biggest importer of Malaysian palm oil from the region. Besides Malaysian palm oil, Nigeria also imported a substantial amount of Indonesia palm oil and from neighbouring West African countries such as Benin, Togo, and Ivory Coast. In the past five years, the average Nigerian palm oil import was 1.310 million MT per year. The average Malaysian palm oil import during that period was about 240,000 MT per year giving the Malaysian market share of about 18%. For the record, the highest volume of MPO ever imported by Nigeria was 384,000 MT registered in 2011.
Palm Oil Stock vs Total Oils and Fats Stock (000 MT)
Based on Oil World data, Nigerian palm oil stocks at the end of March 2020 were 100,000 MT against the total stock of vegetable oil of 124,000 MT giving palm oil stock at 81.5% of total vegetable oil stock. According to the above trend, palm oil stock was on the downward trend from a high of 295,000 MT at the end of March 2019. As the latest stock figure is not available, it is safe to assume that the pandemic may have impinged on vegetable oil availability and supply, resulting in lower palm oil stock at the end of May 2020. During the pandemic period, based on the Nigerian National Bureau of Statistics (NBS) data, the Consumer Price Index for most foods ranging from potatoes, yam, bread, fruits and vegetables, and edible oils have also increased between March and May 2020.
Monthly MPO Imports by Nigeria (Jan 2017- May 2020)
Malaysian palm oil export statistics made available by MPOB shows that from Jan-May 2020, Nigeria has imported 113,000 MT of MPO mostly in the form of CPO/CPL. This volume is about 13.2% lower compared to the same period last year. Based on the 2019 trend, the next three months (June, July, August) import of MPO was quite low with only 33,800 MT. However, in the present condition, with low stock, high demand, and very competitive palm oil prices, Nigeria is expected to import more palm oil.
Opportunities for recovery and demand creation post Covid-19
The major factors that drive the palm oil usage in Nigeria are the level of customer demand provided by the growing Nigerian population and the international price of crude palm oil. A decline in the international price of CPO always leads to increased imports of palm oil, as well as smuggling from neighbouring West African countries. Despite paying an import duty of 35%, Nigeria importers are not discouraged to import more palm oil from Malaysia and Indonesia as the demand is always there and imported palm oil is still cheaper than locally produced palm oil (refer to graph below). This growth trend is projected to continue albeit at a lower rate as palm oil continues to be a major food source for both household consumption for local dishes (70 percent of demand) as well as manufacturing and HORECA sectors which are estimated at 30 percent of local disappearance.
For the next few months and quite possibly towards the end of 2020, Nigeria is expected to import more Malaysian CPO/CPL to replenish declining stock and surge in demand post-Covid-19. The Malaysian government announcement of 100% exemption on crude palm oil export duty until the end of 2020 provides Malaysian palm oil exporters advantages over other exporting countries.
Prepared by Iskahar Nordin
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