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Business News of Saturday, 9 May 2015

Source: B&FT

Oil palm entrepreneurs call for policy intervention

Government have been asked to speedily intervene with strict regulatory and protection mechanisms to avoid risking the loss of 135,000 metric tonnes of oil palm production, and also losing the livelihoods of 290,000 farmers, oil palm entrepreneurs have said.

“Ghana is a growing economy and demand for vegetable oil will keep rising, and as such the nation needs to support the sector to increase domestic production with the right policies and incentives.

“With 50% low yield, high cost of infrastructure, maintenance, electricity, it is very difficult for local farmers to compete with crude palm oil (CPO) imported from the Far East without the duty protection,” Mr. Gangadhar Shetty, Head of Sales and Marketing, Ghana Oil Palm Development Company Ltd., told B&FT in an interview in Accra.

He disclosed that without protection, the economy will need about US$100million foreign exchange to enable it import the commodity. Without duty protection, the palm plantation sector tends to be non-viable and forces plantation stakeholders to freeze the operation.

Palm mills are unable to pay better prices to farmers, making the whole business unattractive to them. Nigeria imposed 35 % tax to protect the palm sector. Ghana, 3rd largest producer of palm oil in ECOWAS after Nigeria and Ivory Coast -- and net importer of CPO, needs government intervention to protect the sector which employs more than 290,000 people.

He explained that the current duty rate discourages investors from choosing the palm sector, while new investors prefer other countries which empower and protect the agriculture sector.

Nigeria, largest producer of palm oil in Africa, produces 930,000mt of CPO and consumes 1,430,000metric tonnes. It has decided to protect the palm agriculture industries by imposing an Import Adjustment Tax (IAT) of 25 % in addition to CET tariff of 10% -- making 35% duty on imports of CPO.

Average yield of CPO/Ha in the Far East is 5.2 metric tonnes compared to 2.5 metric tonnes in Ghana after Best Practice Procedures. This is due mainly to tthe rainfall patterns and soil structure in Malaysia.

Mr. Shetty observed that investors which only invest in refineries would prefer considering the option of going for plantations, adding that the IAT of 10% will bring in additional revenue of approximately US$20million annually.

The IAT will help discourage importation of CPO and boost domestic production.

The increased opportunity for domestic oil palm production will encourage foreign direct investment into oil palm plantations.

He suggested that government should channel part of the IAT revenue into research and development for high-yield oil palm planting material to increase the potential output of oil palm plantations.

In the longer term, once the demand/supply gap is bridged, Ghana can become a net exporter of crude and refined palm oil products to further increase its foreign income reserves.

Over the past eight months, about 48,000 tonnes of sub-standard palm oil has been illegally imported into the country without appropriate duties.

Approximately 305,700 hectares of oil palm plantation is being cultivated nationwide, and an additional 20,000 hectares of oil palm farm is needed to meet the local demand.

In 2010 processing groups projected a production output of 260,000 metric tonnes of palm oil, which indicates a deficit of 35,000 metric tonnes -- leaving government with no option but to spend US$100million annually on importation of oil palm to make up the deficit.

An estimated unmet demand of oil palm the ECOWAS sub-region is between 850,000 metric tonnes and 1,000,000 metric tonnes annually, a huge market the country can take advantage of if properly managed.

More than 80 percent of this is cultivated by private small-scale farmers who mostly use unimproved planting materials. This has contributed to very low productivity in the Ghanaian oil palm industry.

The rising trend of international demand has been precipitated by increasing demand for palm oil for bio-fuel purposes.

Crude Petroleum Price determinants continue to push upward pressure on the price, and demand for CPO is steadily rising in India, China, Europe and the Americas for bio-fuel. In view of this development, investors have been diverting their investment portfolios into CPO.

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