Oil Palm Production: The Case for Africa and for Gabon
By Ranveer S. Chauhan, Managing Director & CEO, Palm and Rubber
Demand for palm oil globally remains strong despite current volatility in the sector. Against this backdrop, Olam has pioneered a world-class palm plantation and processing business in Africa through an innovative joint venture with the Republic of Gabon.
While traditionally palm oil development has been centred on Asia, particularly in Malaysia and Indonesia, Olam recognised that Africa offers a unique blend of available land, rural labour and an existing market that is currently serviced through imports. These attributes are in contrast to other more established palm growing centres where both land banks and availability of trained labour are constrained.
Sub-Saharan Africa is both a potentially attractive supplier of and significant market for palm oil. Vegetable oil consumption in Sub-Saharan Africa stands at 8.5 metric tonnes currently, of which about 75% is palm oil, and consumption is expected to grow by 6-10% per annum from its current low base.
Contiguous parcels of land are available and because of the greenfield nature of the development, there is a clear opportunity to do it right from the beginning on a sustainable basis. Favourable regulatory regimes, tax policies and trade treaties are in place in a number of African countries and their proximity to Europe, the US and South America relative to other origins points to the potential for attractive long-term off-take opportunities.
While parts of the African continent have been well established as the destination of choice for discerning and knowledgeable investors, Gabon stands out as a unique opportunity for palm plantation and production. The political environment is stable and the government has committed up to one million hectares as a sustainable land bank to attract agricultural development.
Olam recognised Gabon’s unique attributes and entered into a sizeable public private joint venture agreement with the government of the Republic of Gabon (RoG) to develop an initial Phase 1 of 50,000 hectares of palm plantation in Gabon. Planting commenced in 2011 and today 31,500 hectares have been planted. Upon reaching full production, yields of up to 24 metric tonnes of fresh fruit bunches or FFB per hectare and 5.2 metric tonnes of oil per hectare can be expected.
The total investment in this Phase 1 development of plantations, palm oil mills and related assets is estimated at US$500 million. Some 6,502 hectares have already been sold and leased back for US$130 million, demonstrating Gabon is also prepared to support innovative financial structures to support the growth of the oil palm sector.
Our public private partnership with RoG is rapidly becoming a case study for adoption of best agronomy, commercial and sustainability practices, bolstering the country’s economy and improving livelihood opportunities for thousands of people in local communities.
Olam’s experience in Gabon has shown that the same success factors seen in Asia can be replicated in Africa through global best practice, tailored approaches for the Africa context, deep local engagement and investment in R&D.