Cash crops: Plantations are attracting significant levels of investment

Intensive cultivation of cash crops plays a central role in Gabon’s ambitions to meet its domestic consumption needs, expand non-mineral exports and generate employment by 2020. The government is eager to attract further investment in palm oil, rubber, coffee and cocoa, as well as new crops like sugar cane, maize and soya. Despite low international prices for rubber and palm oil in 2013, plantations are attracting significant levels of foreign direct investment (FDI), enabling the expansion of environmentally sustainable production. Moreover, the equatorial climate ensures one of the highest yields for rubber, whilst the sparsely populated inland facilitates land acquisition and community relations – although a fine balance with protection must be struck. As production from these projects comes on-line, Gabon will need to overcome constraints linked to its small labour market and inadequate transport infrastructure.

FDI: Investment is dominated by two major players: Brussels-based Société d’Investissement pour l’ Agriculture Tropicale (SIAT) and Singapore’s Olam International. The Gabonese subsidiary of SIAT, which sold China’s Sinochem International (through its Singaporean subsidiary GMG Global) a 35% stake in April 2011, is currently the largest plantation producer. Having acquired Gabon’s privatised AgroGabon, Hévé- gab and the Nyanga Ranch businesses in 2004, the firm’s 7300 ha of palm and 10,310 ha of rubber plants are beyond peak producing ages of 25 years. Having listed a 5.5% stake on the regional stock exchange by mid-2013, SIAT Gabon is replanting and expanding its existing plantations to 7200 ha of palm and 30,000 ha of rubber, as part of a $600m investment plan.

Whilst newer, Olam, in which Singapore’s state-owned Temasek holds a 19% stake, has invested greater amounts at a faster rate. Internationally, Olam has started investing significantly upstream in a bid to secure necessary supplies for its commodity trading activities. Securing a total of 48,000 ha of land to be developed for palm oil (and 52,000 ha to conserve) and 28,000 ha for rubber, Olam had already invested $582.2m in developing plantations and the first of two special economic zones (SEZ) by mid-2013, out of a total investment portfolio of over $3bn.

Whilst Olam’s priority was to develop the plantations, the government of Gabon made development of the SEZs a condition for the award of such large concessions. This investment, which makes Olam Gabon’s sixth-largest investor in 2013, will yield its first palm oil production by end-2015.

RUBBER: SIAT’s 10,000 ha of rubber plants – spread over the northern Woleu-Ntem in Bitam (2094 ha) and Mitzic (5029 ha), as well as in the Estuaire town of Kango (2089 ha) – are 28 years old on average, yet still yield 2.2 tonnes per ha on average, having peaked at 2.5 tonnes (equal to Cote d’Ivoire’s average yields).

Production from all three plantations is processed at SIAT’s Mitzic granulated rubber plant, which has a processing capacity of 30,000 tonnes a year but only produced 19,720 tonnes in 2012, given lower yields of matured plants. It sells mainly to Michelin and Bridgestone, with 90% sold in one-year contracts in 2013 due to falling prices (it usually sells 50% at spot prices). Furthermore, it has started replanting and expanding its plantations at a rate of 500 ha per year, with 2500 ha replanted by mid-2013, aiming to expand to 30,000 ha over the next decade, which will allow the processing plant to reach full capacity of 30,000 tonnes annually. By mid-2013, Olam had planted some 1250 ha of rubber in northern Bitam through its 80:20 joint venture with the Gabonese government, out of a total 28,000 ha the firm aims to plant by 2015.

JOB CREATION: This first phase is expected to create some 6000 new direct jobs. Olam expects to extend the plantation to its full land-bank of 50,000 ha in Woleu-Ntem by 2020, with projected production of 62,000 tonnes a year and higher average yields between 2.4 and 2.6 tonnes per ha. The adjacent processing factory will have capacity of 225 tonnes per day. A third rubber project is in the pipeline as part of South Africa’s SFM Group’s investment in the Grande Mayumba project, currently at the feasibility study phase, which will accommodate timber, sugar cane, rubber, cattle rearing and ecotourism. Global rubber prices have dropped significantly to $2950 a tonne in early 2013 (and are projected to drop below $2500 in 2014) due to lower European tyre demand and the impact of higher rubber planting by the world’s largest rubber producers in South-east Asia in 2007-08. Investors in Gabon are thus making strategic decisions for the coming decade. Growth in global rubber demand is forecast at 3.5% annually, according to Olam. While it takes seven years for a rubber plant to start producing, it takes a further five years to reach peak production. With yields among the highest in the world, West African plantations are a draw.

PALM OIL: Olam has quickly become the largest investor in new oil palm plantations since it started planting in September 2011. Olam Palm Gabon, a 70:30 venture with the government, raised a $228m loan syndicated by four regional banks in July 2012 to fund its rapid planting drive. The first phase of the project aims to plant 50,000 ha of Palm trees: 6500 ha in Kango and 43,500 ha in Mouila (where 19,164 ha began development in March 2013). By August of 2013 some 6000 ha were being planted in Kango, while Mouila planted roughly 1000 ha since February 2012. These projects created 2782 new jobs by 2013, with a total of 5000 jobs expected by 2015. Operating according to Roundtable on Sustainable Palm Oil (RSPO) principles, Olam is planting 143 trees per ha and up to 160 trees per ha in some parts of Mouila.

SIAT, which also aims to become RSPO-compliant by 2015, has started replanting its 7500-ha plantation in Makouké, in Moyen-Ogooué, since 2012. At a pace of 750 ha annually, it will have replanted the whole plantation in eight years. Existing plants are over 25 years old, causing SIAT’s production of fresh fruit bunches to drop from a peak of 42,058 tonnes in 2009 to 26,356 tonnes in 2012. SIAT is planting Cirad seeds, while Olam is planting a variety of four seeds (ASD, Ghana Sumatra and Univanich) to find the most suitable type. While SIAT claims planting costs of $6000 per ha (including seeds and labour), the costs reported at Indonesian plantations are around $5000 per ha. Meanwhile, planting is interrupted during the dry months of June-September.

YIELD FORECAST: The two firms’ projections for yields also diverge: while Olam projects peak yields of 21-22 tonnes per ha, SIAT expects average production of 18 tonnes per ha once its replanted palms reach peak production (current yields on 25-year palms are 14.5 tonnes per ha). “What is good for rubber yields is bad for oil palm yields: while rubber yields can peak at 2.5 tonnes per ha in Gabon, it is unlikely oil palm yields can rise above 18-20 tonnes per ha, given the water deficit of some 450mm per year,” Gert Vandersmissen, the director-general of SIAT Gabon, told OBG. “It is the opposite of South-east Asia.”

SIAT operates a 30-tonnes-per-hour palm oil processing facility that produces detergent soaps and cooking oil, though it has a total capacity of 70 tonnes per hour (see Industry chapter). As the firm’s production grows with its replanting, it expects to reach full capacity, however, for now it has had to import palm from Ghana and Asia in order to compensate for the shortfall. Olam, meanwhile, expects to begin constructing its own 45-tonnes-per-hour oil mill in Kango in October 2013. The construction of the facility is expected to take up to two years. Two larger mills, with capacities of around 80 tonnes per hour, are planned for its Mouila plantation. As both companies develop, however, they are facing constraints in the availability of local labour; 32% of SIAT’s workforce is already made up of immigrants.

While Gabon remains a greenfield proposition for many commercial agriculture investors, the two largest investors in the sector are positioning themselves for medium-term growth. This includes significant investment in associated infrastructure, like roads, housing and power. “Any investor in agriculture has to dedicate roughly 30% of his investment to infrastructure,” Vandersmissen told OBG. The year-long rehabilitation of the Kango river bridge, completed in early 2013, demonstrated the challenges of road transport. Yet the existing railway and rivers are not yet adapted to handling bulk freight. As the transport infrastructure develops in line with the Emerging Gabon plan, new plantation areas will likely attract fresh investment.