Report: Low Incentives Impede Palm Oil Growth 

Nigeria will continue to under-achieve her potentials in palm oil both as a crop for export and local use, says a report. It also said 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.