Fantastic writing! As someone who had a brief stint at Okomu some years ago, I can easily see where the problem lies. I believe the company now has an extended plantation of 15,000 hectares that is purely for palm production, but the parent company (Socfin) tried to backout from further expansion plans due to insecurity and land problems with surrounding communities. The issue of branding and innovation is one I lay at the feet of the MD, who is not open to such ideas.
Thanks for the comment. Yes, insecurity has been quite an issue for a long time. What I find annoying is how their solution to this seems to be just increasing prices to make more money out of the same inputs. These palm oil companies are delivering returns like a VC backed tech company. It's really quite absurd. As for the MD, I suspected it might be the case - you have to be a certain type of person to put your signature to those accounts and be fine with it
I cannot fault them entirely; my uncle is the C.I.A and has told me the majority of what is being discussed at their general meetings is only profits and nothing about innovation. They also have to pay ranking managers (Indians and S/africans) in USD, I suppose that is responsible for the sharp increase in prices since '23. A cursory look at the management team will inform you on how the place is run.
Excellent piece as always. Here’s a daft question that no one has asked, with such huge margins, why isn’t there a stampede by local entrepreneurs to join the terrible twin to make a killing? Isn’t that how markets are supposed to work? Are there some gigantic barriers to entry that are invisible to muggles like me?
It's a good question. One answer is that the companies who dominate these industries tended not to have started from zero. In this case, they ended up with a lot of government plantations that were concessioned or privatised to them. Same thing with urea, cement and so many others. So entering the space to compete with them will be quite costly. All the best palm oil estates are probably gone so you might need to start from scratch
This question bothers me because I think the answer could provide further insights into what else drives the market dysfunction that extracts such huge costs from Nigerian consumers beyond the well known factor of corrupt officials colluding with rent seekers.
I can understand why the need for significant initial capex and even regulation could be a barrier to manufacturing cement or urea. Even if similar barriers hold for large palm plantations, why aren’t lots of small-holder producers entering the market which is largely unregulated?
I have also wondered if there are missing variables in the country comparisons. There are three potential candidates:
1. Cost of capital, or perhaps to keep things simple, interests on any loans and coupons on bonds. How would a comparison of Net Profit Margins of the same companies look?
2. Taxes: Unlikely candidate given the tax holidays the terrible twins have enjoyed
3. Risk. A bit vague, but do the terrible twins’ margins represent excess profit, or are they really fair risk-adjusted returns for a high-risk environment?
None of these is a defence of autarky. I just wonder if there is more than one thing going on here.
As someone who’s been around the industry in the past year, you’d be marveled at the complexities and innate power to remain stagnant across the different players. Everyone is trying to rent seek and make profit for the year. Try to dig deeper into one of the oldest and biggest mills — OOPC and you’d be amazed by how much potential has been lost and may never be regained.
There’s hope in the industry though, there are foreign small players entering the industry and specializing in different outputs and value-adds but one can only hope that the government create a level playing ground for all locally and internationally.
This is a tragic tale. Thank you for your work on this.
Slight correction here: "Even worse, when international prices drop, local prices don’t drop. By the end of the series in July 2005, local prices are N2,642 per litre with international prices N1,328". I think you meant 2025.
Hmmmm. But most of the palm oil I use isn't from these companies... They're usually unbranded, locally refined...
Or are they the chief suppliers?
I did try Okomu's banga palm oil one time like that and it changed the taste of my stew. I wondered for a month whether I had become a bad cook all of a sudden.
I've read almost all the F.O.O.D stories. Is there any commodity that is globally expensive but cheap in Nigeria? Especially regarding Nigerians' purchasing power.
Another painful reality I've seen in the series is that these companies still pay their employees ridiculously low wages. Their fat profits are not even redistributed. What a country. At least Alhaji is not involved here.
Excellent, thorough and humbling reporting Feyi. Having lived in Nigeria off and on for 5 years over the last decade, food inflation is a sustained, almost deliberate problem in the country.
I think you might just write a book on this F.O.O.D series coz this is just too revealing..
Solid 💯
Excellent and depressing writing, as always.
Fantastic writing! As someone who had a brief stint at Okomu some years ago, I can easily see where the problem lies. I believe the company now has an extended plantation of 15,000 hectares that is purely for palm production, but the parent company (Socfin) tried to backout from further expansion plans due to insecurity and land problems with surrounding communities. The issue of branding and innovation is one I lay at the feet of the MD, who is not open to such ideas.
Thanks for the comment. Yes, insecurity has been quite an issue for a long time. What I find annoying is how their solution to this seems to be just increasing prices to make more money out of the same inputs. These palm oil companies are delivering returns like a VC backed tech company. It's really quite absurd. As for the MD, I suspected it might be the case - you have to be a certain type of person to put your signature to those accounts and be fine with it
I cannot fault them entirely; my uncle is the C.I.A and has told me the majority of what is being discussed at their general meetings is only profits and nothing about innovation. They also have to pay ranking managers (Indians and S/africans) in USD, I suppose that is responsible for the sharp increase in prices since '23. A cursory look at the management team will inform you on how the place is run.
Excellent piece as always. Here’s a daft question that no one has asked, with such huge margins, why isn’t there a stampede by local entrepreneurs to join the terrible twin to make a killing? Isn’t that how markets are supposed to work? Are there some gigantic barriers to entry that are invisible to muggles like me?
It's a good question. One answer is that the companies who dominate these industries tended not to have started from zero. In this case, they ended up with a lot of government plantations that were concessioned or privatised to them. Same thing with urea, cement and so many others. So entering the space to compete with them will be quite costly. All the best palm oil estates are probably gone so you might need to start from scratch
This question bothers me because I think the answer could provide further insights into what else drives the market dysfunction that extracts such huge costs from Nigerian consumers beyond the well known factor of corrupt officials colluding with rent seekers.
I can understand why the need for significant initial capex and even regulation could be a barrier to manufacturing cement or urea. Even if similar barriers hold for large palm plantations, why aren’t lots of small-holder producers entering the market which is largely unregulated?
I have also wondered if there are missing variables in the country comparisons. There are three potential candidates:
1. Cost of capital, or perhaps to keep things simple, interests on any loans and coupons on bonds. How would a comparison of Net Profit Margins of the same companies look?
2. Taxes: Unlikely candidate given the tax holidays the terrible twins have enjoyed
3. Risk. A bit vague, but do the terrible twins’ margins represent excess profit, or are they really fair risk-adjusted returns for a high-risk environment?
None of these is a defence of autarky. I just wonder if there is more than one thing going on here.
As someone who’s been around the industry in the past year, you’d be marveled at the complexities and innate power to remain stagnant across the different players. Everyone is trying to rent seek and make profit for the year. Try to dig deeper into one of the oldest and biggest mills — OOPC and you’d be amazed by how much potential has been lost and may never be regained.
There’s hope in the industry though, there are foreign small players entering the industry and specializing in different outputs and value-adds but one can only hope that the government create a level playing ground for all locally and internationally.
Good read. We don’t even understand welfare loss at all.
Great writing. Thank you
This is a tragic tale. Thank you for your work on this.
Slight correction here: "Even worse, when international prices drop, local prices don’t drop. By the end of the series in July 2005, local prices are N2,642 per litre with international prices N1,328". I think you meant 2025.
Yes, thank you. Will fix now
Hmmmm. But most of the palm oil I use isn't from these companies... They're usually unbranded, locally refined...
Or are they the chief suppliers?
I did try Okomu's banga palm oil one time like that and it changed the taste of my stew. I wondered for a month whether I had become a bad cook all of a sudden.
I've read almost all the F.O.O.D stories. Is there any commodity that is globally expensive but cheap in Nigeria? Especially regarding Nigerians' purchasing power.
Another painful reality I've seen in the series is that these companies still pay their employees ridiculously low wages. Their fat profits are not even redistributed. What a country. At least Alhaji is not involved here.
Excellent, thorough and humbling reporting Feyi. Having lived in Nigeria off and on for 5 years over the last decade, food inflation is a sustained, almost deliberate problem in the country.
Great read
Real masterclass as usual 👍👍
Peeped those huge margins & I’m very concerned. Why is the government permitting this? Is it the case of Huge numbers equals huge tax/tariffs figures?
I’m disturbed.