What opportunities exist for Africa?
The global palm oil value chain represents a significant and expanding sector within the global economy. As the world’s most traded vegetable oil, palm oil has several uses across other industries.
While African countries – such as Nigeria, Côte d’Ivoire, and Ghana – have a history of palm oil production, their current participation in the global value chain is modest compared to the dominant players in Southeast Asia.
Today, Indonesia (24.2 million metric tons) and Malaysia (15.9 million metric tons) are the top two exporters by country. Other major exporters in the top five include Thailand, Colombia, and Nigeria.
This article will briefly examine the structure and dynamics of the global palm oil value chain. We will also identify key opportunities African nations can leverage to enhance their involvement and capture more value from this vital commodity.
Understanding the Palm oil Value chain
For clarity, we’d divide the value chain into the upstream, midstream, and downstream sectors.
Upstream: Palm oil farmers and grower groups
The upstream sector encompasses the cultivation and harvesting of oil palm trees. In this stage, the primary output is fresh fruit bunches. In Africa, smallholder farmers play a significant role in palm oil production. Conversely, large-scale plantations are more prevalent in Asia.
Midstream: Palm oil processing and extracting factories
The midstream sector of the palm oil value chain encompasses the crucial stage of processing fresh fruit bunches (FFB) to extract crude palm oil (CPO) and crude palm kernel oil (CPKO). Stakeholders in the midstream include processing and extracting factories, which can be either small-scale or industrial.
Downstream: Refining process for industries utilising refined palm oil
The downstream stage of the value chain involves refining the Crude Palm Oil (CPO) to produce versatile and widely available products. This process typically involves removing the impurities and enhancing the oil’s quality.
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The Versatility of Palm Oil
The import volume of palm oil has increased worldwide over the past few years. This is due to the vast applications of this palm oil across sectors. Let’s highlight the primary food and non-food applications of palm oil;
Food Applications
Palm oil’s affordability compared to other vegetable oils and its high oxidative stability make it an attractive choice for food manufacturers, particularly in price-sensitive markets. It improves the texture, springiness, and overall shelf life of bread, cakes, pastries, and cookies. It is also a key component in making chocolate and chocolate spreads.
It is also used in frozen foods, instant noodles, beverages, and lots more.
Non-food applications
Beyond its extensive use in food, palm oil and its derivatives are integral to numerous non-food industries. The personal care and cosmetics industry is a significant consumer of palm oil, utilising it to produce soaps, shampoos, conditioners, toothpaste, lotions, and makeup. Its ability to act as a foaming agent and its moisturising properties make it a valuable ingredient in these products.
Lastly, the oleochemical industry utilises palm oil as a raw material to produce a wide range of chemicals, including surfactants, emulsifiers, lubricants, and even components used in the textile industry.
Positioning Africa in the Global Palm Oil Value Chain
Multiple palm oil-producing countries in West Africa present significant opportunities for regional economic collaboration. By fostering collaboration, these nations could pool their resources and expertise to address common challenges and leverage shared opportunities.
How can Africa increase its market share in the Palm oil value chain?
Increasing land use.
Oil palm is one of the most efficient land-use crops, producing more oil per hectare than any other oilseed crop.
Indonesia currently has the largest palm oil land use in the world. Between 2000 and 2022, the country’s palm oil forestry grew by almost 650% to more than 30 million hectares.
Similarly, Africa can leverage a structured process of strategically increasing land use for palm tree plantations. Indonesia is the largest producer of palm oil in the world today. However, it took years of consistent efforts in that direction to get to that point.
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Leveraging Regional economics
A breakdown of palm oil production by Indonesian provinces shows that the province of Riau produces more palm oil than any other province, about one-fifth of the country’s total palm oil production.
Similarly, 8 of Africa’s top 10 Palm oil producers are present in West Africa. This means there is an opportunity to leverage regional trade to make West Africa a dominant force in the global palm oil value chain.
Proactive Government Policies
A significant factor differentiating the development of the palm oil industry in Africa from that in Indonesia and Malaysia lies in the respective government policies. Indonesia and Malaysia proactively implemented strategic government policies to foster the growth of their palm oil sectors.
These policies included allocating land for plantation development, providing investment incentives to attract domestic and foreign capital, and establishing dedicated government bodies to oversee and promote the industry.
Research and Development
The level of investment in research and development (R&D) also plays a crucial role in shaping the palm oil industry in Africa.
For instance, Malaysia made substantial investments in R&D through dedicated institutions like the Palm Oil Research Institute of Malaysia (PORIM), which later merged into the MPOB, and the Malaysian Agricultural Research and Development Institute (MARDI).
These investments led to the development of high-yielding oil palm varieties, optimised cultivation practices, and efficient processing technologies, which contributed significantly to Malaysia’s high productivity.
ROUNDING UP
Africa has the potential to significantly enhance its role in the global palm oil value chain. The continent can unlock substantial economic benefits by strategically addressing key areas and fostering collaboration.
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