Low incentives impede palm oil growth
Lagos, Nigeria (December 22nd, 2015): Nigeria will continue to under achieve her potentials in palm oil both as a crop for export and local use. There are significant barriers to investment beyond the global environmental concerns. The incentives to invest in agriculture are low, dysfunctional land tenure system, transaction costs and risks arising from poor governance are high. These are the key findings in a multi-country study on palm oil released today by the Initiative for Public Policy Analysis (IPPA).
The study entitled: “Nigeria: A Smallholder Case-study” is authored by IPPA’s team of researchers as part of a global study of key palm oil producing countries assessing the Socio Economic Impact of High Carbon Stock (HCS). The study finds that small-holders palm oil farmers account for over 90 per cent of palm oil production which is not enough for local consumption alone. It finds that palm oil ought to provide a significant boon to local livelihoods and play a key role in poverty reduction strategy through a well-established value chain but this is overshadowed by broader problems.
The study establishes that the sector is plagued by dysfunctional land tenure regime which works as a disincentive for longer term investment by both smallholders and large estates. There is also lack of coordination between state and federal authorities and a general disregard by local communities of federal laws relating to land tenure. This prevents investors to be wary are of making a large-scale investment in the sector. This is exacerbated given a range of government policies targeting the
sector are either poorly implemented or grossly inadequate to tackle the challenges. The available option for investors is the purchase of a pre-existing plantations, as is the case with few investors already in the sector.
In addition, the study further finds that the global environmental concerns surrounding palm oil production has no direct relevance to Nigeria palm oil as there are much more significant obstacles to investment aside from complying with the required environmental standard imposed by environmental non-governmental organizations. The question of the impact of environmental regulations on palm oil – whether through private sector (e.g. Roundtable on Sustainable Palm Oil) or state or national laws – on smallholders is and has to this point been a non-issue.
Environment driven regulatory frameworks such as High Carbon Stock (HCS) or Roundtable on Sustainable Palm Oil (RSPO) is likely to provide some level of assurance to assuage environmental organizations but their imposition or adoption is an additional burden on small-holders who can
barely produce enough for the local economy. Mandating palm oil farmer to comply with certain environmental requirements would be ineffectual in the face of poor environmental management in Nigeria which is hamstrung by lack of enforcement capacity.
“The land tenure system is perhaps the biggest disincentive for investment particularly for palm plantation. The risks associated with the land tenure system have necessitated companies to undertake extensive community consultations which have achieved positive results. However, there will always be levels of dissatisfaction in any community where consultation is one-sided with government. This will lead to some level of conflict which requires constructive engagement of all the stakeholders,” says Thompson Ayodele, one of the authors of the study.
“Oil palm is not a key driver of deforestation in Nigeria. Environmental thresholds on oil palm will not necessarily result in environmental protection. They may simply prompt development of another crop, this is because the area available for oil palm – although suffering low productivity – is large,” Ayodele concludes.
The study concludes that environmental threshold on oil palm will not necessarily result in environmental protection largely because oil palm is not a key driver of deforestation in Nigeria. The population’s reliance on firewood for fuel is likely to worsen deforestation, as a weakened economy
will force more Nigerians to chop down trees for cooking fuel and shelter. And government policy needs to aid smallholders in order to achieve self-sufficiency in palm oil production as well as reforming the land tenure system which dis-incentivizes private large-scale plantation.