As global sales of palm oil dwindle, Indonesia, the world’s largest producer of palm oil said it will look to do barter trades to increase sales of the commodity.
The country is looking at exchanging palm oil for crude oil with countries such as Nigeria and even airplanes with EU countries for its national carriers.
Indonesia’s Trade Minister Enggartiasto Lukita said in a statement issued to Reuters that it has signed a preliminary deal last month with Russia’s Rostec to exchange commodities, including palm, as part of a $1.14 billion payment for 11 Sukhoi jets.
The major cause of the waning demand has been attributed to the fall in demand from European Union countries. According to Reuters report, the European Union is the second-largest palm oil export destination after India for both Malaysia and Indonesia, which dominate production in a global market worth at least $40 billion.
Unfortunately for Indonesia and Malaysia, two of the world’s largest producers; palm oil has come under increasing fire in Europe over its impact on forest destruction, encouraging producers to look at new markets ranging from Africa to Myanmar.
To further push its agenda, Indonesia’s Vegetable Oil Association executive director Sahat Sinaga said palm oil producers will open a marketing and research company in Russia, aiming to increase exports of 920,000 tonnes in 2016 by 4-5 percent per year up to 2023.
The group is also planning to open a storage facility in Pakistan, which imports 1-2 million tonnes of palm from Indonesia a year, anticipating further growth in demand.
Malaysia, the world’s second largest producer is said to be more vulnerable. Malaysia is said to be looking at exploring trade opportunities within its region with countries such as Myanmar, the Philippines, and West Africa. Malaysia has not stated its approach. However, Reuters’ data shows that Malaysia is more reliant on palm oil exports than Indonesia, shipping out more than 90 percent of its palm oil last year, compared to about 70 percent in Indonesia.
It is not clear if Nigeria is disposed to the deal as the country’s palm oil production has increased since a Forex crisis precipitated by the recession discouraged palm oil importers from increasing their volume.
As a reality check, Presco and Okomu Oil, two of Nigeria’s largest palm oil producers. Presco in its 2016 third quarter result said its net profit surged by 49% year on year. Presco’s Revenue for the third quarter of the year rose to NGN11,9 billion. Last year, the company only reported NGN8 billion. Okomu Oil also witnessed a significant increase in its result.
However, Nigeria’s local production which has been estimated at 970 million metric tonnes according to data collected by Index Mundi, the country’s consumption far exceeds the local production.
For a country which used to be the largest exporter of the commodity, analysts who spoke to PageOne.ng said going cap in hand to exchange crude oil for palm oil will further hurt the local economy especially local producers who are regaining their production strength.