A Scoping Study on the Palm Oil Value Chain in Rivers and Imo States, Nigeria PIND ED-05-SSPOVCRIN-December 2012 Foundation for Partnership Initiatives in the Niger Delta (PIND) 1st Floor St. James Building, 187 Adetokunbo Ademola Crescent Wuse II, Abuja, Nigeria Palm Oil Value Chain Scoping Study Table of Contents LIST OF ACRONYMS…………………………………………………………………………………………….…5 GLOSSARY………………………………………………………………………………………………………..…7 ACKNOWLEDGEMENTS……………………………………………………………………………………...…...8 EXECUTIVE SUMMARY………………………………………………………………………………………...….9 INTRODUCTION……………………………………………………………………………………………….......12 Background………………….…………………………………………………………………………………...12 Objectives………………………………………………………………………………………………………...13 Research Methodology……………..…………………………………………………………………………..13 Limitations to Study…………………………………………………………………………………………...…15 OVERVIEW OF PALM OIL SECTOR IN NIGERIA..………………………………………………………..….16 Palm Oil Contribution to GDP…..………………………………………………………………………...…....16 Capacity Utilization in Sector…………………………………………………………………………………...17 Palm Oil Sector Profile……………..………………………………………………………………………..….17 Defining the Market……………………………………………………………………………………………...18 Market Share by Producer Groups…………………………………………………………………..….18 Organization of the Sector……………………………………………………………………………………...19 Structure of the Value Chain……..……………………………………………………………………...20 Availability of Finance……………..……………………………………………………………………...30 Products…………………...……………………………………………………………………………………..31 Additional Products………………..……………………………………………………………………...32 Production Process Machinery, Tools, Equipment……………………………………...…………………...32 Production Process………………..……………………………………………………………………...32 Processing Equipment and Operation…………..……..………………………………..……………..35 Income and Value Addition……………………...……………………………………………………………..38 Palm Oil Price Progression in Nigeria……..…………..……..………………………………………...41 Growth Potential and Opportunity ………………………………..…………………………………………...41 Trade Associations and BMOs……………..…………………………..……………………………………...41 Association of Palm Oil Dealers and Sellers (APOD), White Sand Market, Otto, Lagos…….…..41 Elepo-Lo-Lere Association, Oyingbo Market, Lagos ……………………………………….………...42 Oil Palm Growers Association of Nigeria (OPGA)………………..…..………………..……………..42 Vegetable Oils Producers Association of Nigeria (VOPAN)………………………………………….43 Female Participation in Palm Oil Sector………………………………………………………………...…….43 Constraints in the Palm Oil Sector…………………………...………………………………………………..44 Safety and Environmental Interventions…………………………………………………………....…….…..45 STRATEGY FOR DEVELOPING PALM OIL SECTOR…..……………………………………………….......47 Vision and Strategy……………………...………………………………………………………………..…….47 Suggested Interventions……………………………………...………………………………………………...48 Activities Required to Implement Suggested Interventions……………………………………....……..….49 Partner Selection and Offer…………….…………………………………………………………....…….…..50 ANNEXES……………….………………………..…..……………………..…………………………………..….53 Terms of Reference……………………..…………………………………………………………………...….53 Question Guide………………………………………………...…………………………………………….….55 List of Persons Interviewed…………….…………………………………………………………....…….…...60 Profile of Potential Partners…………….…………………………………………………………………...….64 REFERENCES……………………….…………..…..……………………..……………………………….....….80 3 List of Figures Figure 1: Palm oil production in the last 22 years……………………………………………………………....17 Figure 2: Value chain maps ……………..…………………………………..…………………………………....20 Figure 3: Carved log at Abua Central in Rivers where digestion takes place……..………………………...27 Figure 4: Distribution of production data of oils from oil palm in 2011 ……………………….……………....31 Figure 5: Quartered fresh fruit bunches waiting for processing ………………………….…………………...33 Figure 6: Flow chart for the palm oil process……………………………………….…………………………...34 Figure 7: Small-scale mills at Umuagwo cluster, Imo state ...…….....………………………………...……...35 Figure 8: SPO production flow chart ………………………..…………………………………………………...38 Figure 9: Secondary processing of SPO to its derivatives…..……..………..………………………………...39 Figure 10: Market logic: palm oil sector………………….. …..……..………..………………………………...52 List of Tables Table 1: Constraints within the Niger Delta Palm Oil Value Chain …………………………………………...10 Table 2: Companies Visited According to Value Chain Functions ……………..…………………..…..…….14 Table 3: Palm Oil Production, Export, Import, and Consumption (for food and non-food purposes) in 2010/11…………………………………………………………………………………………………………..….16 Table 4: Demand Supply Gap for SPO Value Added Products in Randomly Sampled End Markets…....19 Table 5: Acceptable SPO Physical and Chemical Properties…………………………….…………………...19 Table 6: Quality Attributes of Oil Palm Planting Materials ……………………………..……………………...21 Table 7: Area Under Palm Oil in the Different Production Systems in the Pilot States……….………..…..23 Table 7a: Factors Differentiating Three Clusters of Imo State Processors ……………………………........24 Table 7b: Variables and Findings for Oil Palm Millers in Umuagwo Ohaji Cluster…..……………………...24 Table 7c: Variables and Findings for Oil Palm Millers in Rivers State Cluster……………….……………...25 Table 8: Randomly Sampled Millers in Elele Cluster Communities……………...………….………………..26 Table 9: Variables and Findings for Oil Palm Millers in Elele Cluster Communities…..…..………………..27 Table 10: Results of Situational Analysis for Rivers and Imo States.. …………………………………..…...27 Table 11: Quotations for NIFOR Small Scale Processing Equipment………..……………….……………...35 Table 11a: Numerical Assessment of the Fabricators……………..……………...………….………………..37 Table 12: Value Addition of TPO and SPO with Production Technology and FFB Sources…..…………..40 Table 13: Female Involvement at Different Levels of the Palm Oil Sector……...………….………………..44 Table 14: Constraints in the Niger Delta’s Palm Oil Sector………………..……...………….………………..44 Table 15: Environmental Issues and Proposed Interventions……………………….………..…..…………..46 Table 16: Business Case for Upgrading TPO Processors to SPO Processing…………….………………..47 Table 17: Constraints, Suggested Interventions, and Probable Partners……...……..…….………………..48 Table 18: Activities Required to Implement Suggested Interventions…..……...……..…….………………..49 Table 19: Partner Selection/Offer……………………………………….…..……...……..…….………………..50 Palm Oil Value Chain Scoping Study List of Acronyms ADP Agricultural Development Programme ATED Appropriate Technology Enabled Development BMO Business Management Organization CAC Corporate Affairs Commission CBN Central Bank of Nigeria CBE Cocoa Butter Equivalent CIRAD Agricultural Research for Development CPKO Crude Palm Kernel Oil CPO Crude Palm Oil DFID Department for International Development EFB Empty Fruit Bunches ETL ECOWAS Trade Liberation FAO Food and Agriculture Organization of the United Nations FCMB First City Monument Bank FFA Free Fatty Acid FFB Fresh Fruit Bunches FGD Focus Group Discussion GDP Gross Domestic Product INRAB Integrated Management of Natural Resources & Agricultural Development NAFDAC National Agency for Drugs Administration and Control NDA Niger Delta Area NDDC Niger Delta Development Commission NGN Nigerian Naira NGO Non-Governmental Organization NIFOR Nigerian Institute for Oil Palm Research NLC Nigerian Labour Congress 5 OER Oil Extraction Rate OPGAN Oil Palm Growers Association of Nigeria PIND Foundation for Partnership Initiative in the Niger Delta PKC Palm Kernel Cake PKO Palm Kernel Oil POS Palm Oil Sludge QC Quality Control RBDO Refined Bleached Deodorized Oil RDPKO Refined Deodorized Palm Kernel Oil RSPO Roundtable on Sustainable Palm Oil SON Standards Organization of Nigeria SPO Special Palm Oil SSPE Small-Scale Processing Equipment TPO Technical Palm Oil UNIDO United Nations industrial Development Organization UNDP United Nations Development Programme USAID United States Agency for International Development VEOPAN Vegetable and Edible Oil Producers of Nigeria VOPAN Vegetable Oils Producers Association of Nigeria Palm Oil Value Chain Scoping Study Glossary Crude Palm Kernel Oil: A light yellow crude oil, extracted from the palm kernels, containing mainly lauric acid. Facilitator/Facilitation: An action or individual (or group of individuals) that temporarily works to develop more inclusive, dynamic, and differentiated markets without becoming a part of the markets. Food Security: Food security exists when all people, at all times, have physical and economic access to sufficiently safe and nutritious food that meets their dietary needs and food preferences for an active and healthy lifestyle. Market: A set of arrangements by which buyers and sellers are in contact to exchange goods or services; the interaction of demand and supply. Market System: The multi-player, multi-function arrangement comprising three main sets of functions (core, rules and supporting) undertaken by different players (private sector, government, representative organizations, civil society, etc) through which exchange takes place, develops, adapts and grows. A construct through which both conventionally defined markets and basic services can be viewed. Olein: Also referred to as Palm Olein is the light yellow edible oil obtained from the fractionation of Refined Bleached and Deodorized Palm Oil, which is separated in two fractions by partial crystallization. The liquid fraction is called Palm Olein. Out-growers: A group of farmers supported with seedlings and other inputs (out-growers‟ scheme is usually initiated mainly by government or sometimes by other non-state stakeholders) to encourage the cultivation of oil palm as increase production of oil palm products. Special Palm Oil (SPO): Premium grade