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Palm oil: You reap what you sow

By Pascal Airault in Toumanguié
Posted on Monday, 25 October 2010 13:26

With Southeast Asian plantations reaching export capacity, Singaporean oil companies are entering into partnerships with African firms, bringing welcome expertise but some controversial production techniques.

Toumanguié lies 80km east of Abidjan. Viewed from above, the plantation looks like an immense green checkerboard on which the umbrella leaves of oil palms are delicately placed. A great deal of time seems to have been spent on getting the most out of every last space. At the centre is a factory, surrounded by several buildings, letting out long greyish spirals of smoke. The helicopter gradually gets closer to the ground and a big sign reveals the message: “The keys to success: Rigour. Discipline. Consistency. Thrift. Let us apply them thoroughly, all the time. Every day and without restraint.”

Welcome to Palmci, born from the privatisation of the formerly state-owned Palm Industrie, and bought by Unilever and locally-owned agro-industry company Sifca in 1997. Since then it has become the dominant player in the West African palm oil industry.

Palmci kickstarted the operations of a joint venture with two Singaporean firms, Wilmar and Olam, in 2008. Together they are working on ‘Operation Redback’ – named after a particularly venomous spider from Australia.

The keys to success: Rigour. Discipline. Consistency. Thrift. Let us apply them thoroughly, all the time. Every day and without restraint

However, the alliance has also created discontent. Abbas Jaber, the director of Advens, a peanut oil and cotton producer, says that the coalition is an illegal alliance designed to “sink” other companies in the region. To stop them, he filed a complaint in September 2008 with the Union Economique et Monétaire Ouest Africaine (UEMOA), a complaint which was ultimately unsuccessful.

In the meantime, the Ivorian-Asiatic triumvirate has taken up most of Unilever’s assets in Côte d’Ivoire. It has also created a refinery at Sania, which is 49.5% owned by Sifca and 50.5% owned by Nauvu, Olam and Wilmar’s joint venture. Between the Sania and Palmci operations, the company recorded 283.5bn CFA francs ($537.3m) in turnover in 2009, making it the largest palm oil company in West Africa.

Seeking asian expertise

On the ground, a veritable revolution is underway. “We did not come to play games,” says Ho Dye Joan, Palmci’s West African plantation director whom Wilmar sent to Côte d’Ivoire. “The objective is to match Asian levels of profitability as far as we can.”

The 60-year-old Chinese national previously managed the highest yielding plantations on the Indonesian island of Sumatra. In Côte d’Ivoire, he is pushing large-scale modernisation of the company’s plantations using fertilisation, draught animals and increasing the number of plants per hectare. To reduce the amount of night-time theft, plants are transported to the factory as soon as they are harvested.

Over the last two years, the companies have invested about 55bn CFA francs in modernising production.

To build on the lessons learned in Côte d’Ivoire, the partners send Palmci technicians to Wilmar plantations across the world. It gives them the opportunity to improve their English and to discover new techniques. “It is impressive,” says Brou Kouadio, director of the industrial plantation at Ehania, a site 70km from Toumanguié. “In Asia, they work 12 hours per day instead of eight hours like here. Everything is thought out, well ordered and coordinated to avoid the loss of energy and to assure maximal productivity.”

A million tonnes

Experience counts for a lot, but Ho Dye Joan has set the bar very high. The production cost of a tonne of palm nuts is $5 in Indonesia, while it is now $20 in Côte d’Ivoire and was more than $40 two years ago. There is still a lot of room for improvement. “We have already increased productivity from 13.5tn/ha in 2008 to 16.8tn/ha in 2009 on the industrial plantation,” says Palmci secretary-general Christophe Koreki. “But we can do much better, especially at the village level, where production is at 6.5tn/ha.”

The issue is one of size: village holdings represent 122,000ha, while there are only 28,000ha under industrial cultivation. The first efforts are already bearing fruit: production at Palmci has increased from 323,000tn in 2007 to 439,000 in 2009. The objective is to reach a million tonnes by 2020.

A major complaint by the Asian companies is that inputs – fertiliser, spare parts and pest control products – are very expensive. In order to reduce costs, Sifca director Yves ?Lamblin decided to pool together the different companies’ orders and create a central buying office which allows it to benefit from economies of scale. Sifca and Nauvu have equally invested 15bn CFA francs to build a new 1,500tn/day refinery in Abidjan. The Abidjan factory is dedicated to the production of finished products for the Ivorian and regional markets. It opened its doors in May.

Regional blends

Industrial production of palm oil in West Africa is not limited to Côte d’Ivoire. In Ghana, too, there has been a part privatisation of a national producer, which has helped to introduce modern techniques and new productivity drives. The Ghana Oil Palm Development Company (GOPDC) is majority-owned by Belgian company Siat, with Ghana’s Social Security and National Insurance Trust and ATMF as the other shareholders. Siat also owns 60% of Presco, which runs 12,500ha of industrial oil plantations in Nigeria. GOPDC itself manages 8,000ha of oil palm plantations, with 13,000ha run by smaller outgrowers. An onsite 100tn per day refinery has modernised oil processing.

Ghana’s agricultural model is less focused on plantation agriculture, a pattern which is also found in the cocoa sector. This often boosts quality, according to palm oil processor Felicia Twumasi. She now uses a network of 3,000 women outgrower farmers processing between 250-460 tonnes of palm oil a year. Twumasi has also worked on creating a strong consumer brand for Homefoods, her agribusiness company which has sales of $1.5m per year. Twumasi says she feels no threat from the arrival of Asian investors in West Africa’s palm oil industry. “Ghana is importing 20,000 20-foot containers of vegetable oil a month,” she explains. The region is nowhere near meeting its demand and any investment in domestic production will help scale back reliance on Asian imports, she says. “I pray they come.”

By Gemma Ware and Nicholas Norbrook

Friendly competition

In the sub-region it will face competition from imports and local companies. Paradoxically, Wilmar’s Ivorian oil could face competition from that produced by Wilmar in Asia, including brands like Viking. “Competing production normally arrives from Togo,” explains a worker at Sania. “Our partner has promised us that it would be sure that its products do not arrive in Côte d’Ivoire, where the importation of non-UEMOA oils is prohibited.”

Not all of the countries have the same level of protection. Imports usually meet needs that are not met by local companies. West Africa regularly experiences an annual deficit of 800,000tn of oil, a deficit which is expected to grow to 1.5m tn in 2020. The two Asian giants have studied the numbers. “They know very well that they cannot flood the local markets without angering local producers,” explains a local banker. “What is more, they cannot expect to export forever. There are limits at home due to land-use pressures and a diminishing pool of agricultural labourers. That is why they form alliances with partners like Sifca.”

Wilmar CEO Kuok Khoon Hong demonstrated his ambition last November: his company, one of the world’s top agricultural producers, announced plans to invest a billion dollars in plantations in China, Indonesia and Africa.Already present in Uganda and Côte d’Ivoire, Wilmar could expand its activities into the Gulf of Guinea and Great Lakes, much to the dismay of environmental activists who oppose the intensive Asian model of production.

Agricultural production, both large-scale and small-scale, has stripped Côte d’Ivoire of most of its forest cover. While companies have focused on increasing production to meet demand, their long-term performance will be judged on how sustainable production will become, since it requires vast swathes of land and leads to the release of large amounts of carbon into the atmosphere. Lobby groups have sprung to action to fight deforestation and illegal practices in Asia’s oil industry, but production in Africa has yet to get much attention.

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Africa needs more regional collaboration

This article was first published in the August-September 2010 edition of The Africa Report.

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