Into Africa, the next frontier for palm oil


Malaysian companies are looking to Africa after running out of land in the regionMalaysian companies are looking to Africa after running out of land in the regionMalaysian companies are looking to Africa after running out of land in the region

The oil palm is returning to its origins in Africa, as this continent is now poised to be the next frontier for the plantation giants seeking suitable land for expansion.

Africa’s organised plantation sector, conducive climate and large markets make it an attractive proposition for large oil palm companies to set down roots there.

Olam International Limited co-founder, group managing director and chief executive officer Sunny Verghese said recently that countries like Nigeria, Gabon, Ivory Coast and Liberia are well suited for oil palm and rubber plantations.

Olam International is a Singapore-based agricultural business engaged in the processing of agricultural produce. It has 50,000ha of oil palm and 20,000ha of rubber plantations in Gabon.

Speaking at the Palm and Lauric Oils Conference and Exhibition earlier this month on ‘Africa: opportunities and challenges’, Verghese said Africa has the advantages of a suitable agro-climatic conditions for oil palm and rubber, as well as contiguous land available for plantations.

“Palm oil is the historical crop of the continent as it originated from the tropical rainforest region of West and Central Africa, and is also the essential ingredient of traditional African cuisines,” he told more than 2,000 delegates from over 50 countries.

Africa also has an existing organised and vast plantation sector, comprising of mostly smallholders and traditional landholdings, he said.

Malaysian plantation giant Sime Darby was the first Malaysian firm to venture into Africa in November 2007 when it bought 220,000ha in Liberia. Malaysian companies had begun looking to Africa after running out of land in the region when Indonesia also started to actively invest in the oil palm sector.

Although Indonesia has since overtaken Malaysia as the world’s largest oil palm producer in terms of plantation land size, this sector remains important to the Malaysian economy. Malaysian palm oil companies continue to flourish worldwide in the value-added sector such oleochemicals to make detergents, cooking oil and milk products.

Since palm oil made its commercial debut in Malaysia in 1956, the industry had grown rapidly in Peninsular Malaysia. Having run out of suitable land in Malaysia, plantation firms have had to scout for more land abroad.

In the 1980s, they expanded to Indonesia, with companies such as Sime Darby, Felda Global Ventures, IOI Corp, TH Plantations. IJM Plantations, TSH Resources and Kuala Lumpur Kepong having acquired large landholdings in Indonesia.

But as Indonesia joined the sector as a keen competitor, large Malaysian firms such as Sime Darby and Kuala Lumpur Kepong began to move further afield to Papua New Guinea, and now to Africa.

Africa has several advantages.

Verghese said the macro framework in Africa is ready for investors with government-led land deals, financing options by regional banks, and authorities which are favourable to long-term investments.

He said as Africa had begun discussing investments in plantation land more than 10 years ago, a solid framework has now been set into place.

Further, there is adequate plantation and labour availability in sub-Saharan Africa to sustain new plantations.

Verghese also noted that Africa has a very large local market for edible oil selling at a premium, while the international markets also favour African produce.

Potential development for biodiesel in Africa is likely to contribute to a future demand for palm oil, with nine African countries already having biodiesel blending mandates or targets. As palm oil is the most affordable oil in Africa, there is also an increased demand for industrial use such as in soap products and lubricants.

Africa is now the world’s third biggest market for palm oil, representing up to 13% (6.6 million tonnes) of global demand. Only India and Indonesia are ahead of it, while China and the European Union (27 countries) are behind.

Palm oil is strengthening its number one position in Africa, now commanding 56% of total edible oil consumption. The demand is likely to grow to 8.5 million tonnes by 2030 and 12.6 million tonnes by 2050.

However, operating in Africa is not without its challenges.

Verghese said the organised plantation sector is still relatively small, coupled with some ambiguities in land-related investment policies. Compared to Asia, the logistics and infrastructure network are far more expensive and the labour force lower in productivity.

To succeed in Africa, he said firms need experienced management teams with an emerging market sensibility. Greater efforts are also needed towards an astute and proactive policy framework, training of local farmers and workers, positive engagement with the local community, as well as a commitment to sustainability along the guidelines set by the Roundtable on Sustainable Palm Oil. Long-term financing for plantation projects is also crucial to success.

“Malaysia can do it. Very few countries have been as successful as Malaysia in leveraging their vast agriculture opportunities,” said Verghese.


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