Gabonese investments in palm oil reshaping industrial sector

The markets of West Africa import 1.9m tonnes of palm oil every year, used mainly for cooking, according to a March 2016 report from Lagos-based newspaper Mail&Guardian Africa. The commodity currently fetches around $686 per tonne, and in recent years the price has been relatively stable. Given the substantial demand, Gabon is hoping to displace Malaysia and Indonesia – the two largest producers in the world – as the region’s main supplier of palm oil after adopting techniques learned in Ghana and Nigeria.

The biggest plans under way are those of Singapore-based Olam International, whose Olam Palm Gabon is targeting export earnings of $625m, which is the approximate size of the country’s yearly food import bill. Other moves in the market include India’s 3F Oil Palm Agrotech’s intention to invest $200m in greenfield operations, while SIAT Gabon, a subsidiary of Belgium-based Société d’Investissement pour l’ Agriculture Tropicale, is looking to exit. The IMF believes that planned investments in cash crops will help GDP growth recover from 3.2% for 2016 to 5% in the medium term.

Planting Plans

Given the rising demand for palm oil and the regional supply deficit, Olam, which is majority-owned by Singapore’s sovereign wealth fund Temasek Holdings, has invested heavily in the sector. Olam owns 45,000 ha of plantation land in Mouila and 7000 ha in Awala, with planting started in 2014 on 16,000 ha in Awala and Mouila after Olam passed their environmental and social impact assessment that same year and achieved certification from the Roundtable on Sustainable Palm Oil. Olam expects to complete planting of the full 52,000 ha by 2017. A 30-tonne capacity mill is already under production in Awala, and a 90-tonne mill is under construction in Mouila, due for delivery in 2017. A modest first commercial harvest occurred in August 2015, although oil palms are long-cycle crops that typically take 10 years to peak.

Olam’s investment in oil palms is $10,000 per ha, which rises to $12,000 when including the mill costs. The oil palm cycle is 25 years, after which Olam will replant. The 52,000 ha are expected to produce 1.2m tonnes per annum (tpa) of fresh fruit bunches, which will be processed into 312,000 tpa of palm oil. The company also plans to support smallhold planting of another 70,000 ha of oil palms by 2020 through its joint venture with the government, Société Gabonaise de Transformation Agricole et de Développement Rural (Sotrader). Sotrader has already begun the first phase of planting 30,000 ha, of which eight cooperatives will get 2100 ha each. Within the cooperatives each farmer will be awarded 7.5 ha on which they are allowed to build housing and harvest half a hectare for their own crops. A nursery has already been set up and planting is set to begin in September 2017 and is set to be staggered through 2018. Three associated 90-tonne processing mills are also set to start production in 2019.

Entry & Exit

SIAT Gabon was the country’s major palm oil producer, until Olam and 3F Oil Palm Agrotech arrived. The latter is seeking 40,000 ha to plant oil palm and set up a refining operation in a $200m investment that will create 4000 direct and indirect jobs, according to a March 2016 report from The Wall Street Journal.

SIAT Gabon is currently looking to “reorganise their entire palm business,” Gert Vandersmissen, the firm’s group COO, told OBG. The business has been loss-making due to problems finding skilled labour, as well as competition from tax-free imports. In 2015 SIAT Gabon saw an overall loss of CFA5.7bn (€8.6m) and sales fell 4.6% to CFA22.2bn (€33.3m). The company now wants to focus more on its rubber business going forward. The firm has 7500 ha of oil palm plantations in Makouké, as well as a palm oil refinery in Lambaréné, which produces 20,000 tpa of crude palm oil and 2000 tpa of palm kernel oil. The mill in Makouké has an hourly processing capacity of 25 tonnes of fresh fruit bunches, while the Lambaréné refinery’s daily capacity is 50 tonnes of olein and 5 tonnes of stearin, which are sold under the brand names Cuisin’Or and Pursavon, respectively.