Market News

LAGOS – Nigeria’s oil palm industry, long consid­ered one of the country’s most promising agribusiness sectors, is facing an unex­pected challenge as a surge in imports and weakening tariff protection erode domestic pricing power.

Analysts at Coronation Research say the situation is already affecting the financial performance of major produc­ers and could reshape the outlook for the industry in the near term.

Despite improving global prices for crude palm oil (CPO), local producers are grappling with a sharp decline in domes­tic prices triggered by rising imports and weak enforcement of trade regulations.

The pressure is particularly evident in the results of listed producers such as Okomu Oil Palm Company Plc and Presco Plc.

Analysts warn that unless the gov­ernment strengthens import controls or adjusts policy, the industry’s historically strong profitability could face sustained pressure.

Global Prices Rise While Domestic Prices Fall

The global palm oil market has entered 2026 with stronger price momentum. According to the World Bank, average crude palm oil prices in the first quar­ter of 2026 stood at about $1,049 per metric ton, rising steadily to $1,103 per metric ton by March.

However, the domestic market in Nigeria has moved in the oppo­site direction.

Management of Okomu Oil Palm confirmed in March that local palm oil prices dropped by roughly 30 percent between De­cember 2025 and March 2026. The decline was largely attributed to a surge in imports that flooded the local market and pushed prices below global benchmarks.

For producers whose revenue models depend heavily on domes­tic sales, this development has significantly undermined earn­ings expectations.

Nigeria’s Structural Supply Gap

Ironically, the import surge is occurring despite Nigeria’s per­sistent structural deficit in palm oil production.

Government estimates indi­cate that domestic output averag­es about 1.4 million metric tons annually, far below the estimated national consumption of roughly 2.5 million metric tons.

This gap forces the country to import between $500 million and $600 million worth of palm oil each year.

Data from the National Bu­reau of Statistics shows that crude palm oil ranked among the top ten imports from West Africa in 2025, with total trade valued at N59.7 billion.

The scale of imports surged sharply in the third quarter of 2025, when trade reached N30.08 billion—representing a stagger­ing 288.5 percent increase from the previous quarter. That spike coincided with the first season­al revenue declines recorded by Presco and Okomu during the second half of the year.

Analysts believe the timing is not coincidental.

The influx of cheaper import­ed palm oil exerted downward pressure on local prices, reducing revenue for domestic producers even as global prices remained elevated.

Tariff Policy Shift Adds Pressure

Compounding the problem is a recent policy adjustment that reduces protection for local pro­ducers.

Under Nigeria’s import framework, crude palm oil im­ported from outside the Econom­ic Community of West African States (ECOWAS) attracts full duties and levies. Imports from ECOWAS countries can enter un­der the ECOWAS Trade Liberali­sation Scheme (ETLS) with only a five percent levy, provided they have valid certificates of origin.

In practice, analysts say the system is frequently undermined by smuggling and falsified certifi­cates, allowing imports to bypass tariff restrictions.

As a result, formal tariff struc­tures have failed to maintain do­mestic price stability.

The pressure intensified fur­ther after the Federal Govern­ment implemented new fiscal policy measures in April 2026.

The policy reduced the Import Adjustment Tax on crude palm oil from 35 percent to 28.75 per­cent as part of a broader review covering 127 tariff lines.

Analysts interpret the deci­sion as a clear signal that policy­makers are prioritising consum­er price relief over protection for domestic producers.

“The combined effect of ille­gal imports and tariff reduction means the domestic pricing pre­mium historically embedded in producers’ financial models is no longer guaranteed,” Coronation Research noted.

Okomu’sForecastMissSignalsPricing Shock

The impact of this pricing dis­ruption is already evident in the financial performance of Okomu Oil Palm.

The company’s first-quarter results for 2026 fell dramatically short of its internal projections. Revenue for the quarter came in at N58.95 billion, significantly below the forecast of N97.05 bil­lion—a shortfall of N38.09 billion or 39.25 percent.

The revenue gap quickly fil­tered through to profitability.

Although total expenses were lower than projected—coming in at N23.48 billion compared with the forecast N39.88 billion—the cost savings were not enough to offset the revenue shock.

Profit before tax stood at N34.10 billion, missing the fore­cast of N57.17 billion by more than 40 percent. Profit after tax also fell well below expectations at N23.60 billion, compared with a projected N38.70 billion.

Analysts say the numbers highlight how rapidly the pricing environment deteriorated.

“This was not a seasonal vari­ation,” the report noted. “It rep­resents a fundamental breakdown in the pricing assumptions under­lying the company’s forecasts.”

Management has also indicat­ed that the second quarter of 2026 could be weaker than the same period in 2025, suggesting that the pricing pressure may persist.

Presco Shows Resilience But Faces Risks

While Okomu struggled with a sharp revenue miss, Presco de­livered more resilient results in the first quarter of 2026.

The company recorded total revenue of N100.86 billion, rep­resenting a 7.54 percent year-on-year increase. The growth was driven entirely by its Nigerian operations, which generated N84.37 billion and accounted for nearly 84 percent of total revenue.

Analysts attribute the growth largely to improved production volumes.

However, Presco’s Ghana op­erations experienced a decline. Revenue from Ghana fell by 14.47 percent to N16.49 billion, re­ducing its contribution to group earnings.

Exchange rate effects played a role, with the company recording a N6.37 billion foreign exchange loss during the quarter.

Even so, Presco’s balance sheet has strengthened consid­erably following a major capital restructuring.

Total equity surged to N477.07 billion—an increase of more than 166 percent year-on-year— driven by a rights issue and re­tained earnings growth. Total assets also rose to N802.38 billion.

Perhaps most significant is the company’s near-zero net debt position of just N86.84 mil­lion, compared with net debt of N87.12 billion a year earlier.

Analysts say this transfor­mation from a leveraged acqui­sition-driven business into an ef­fectively ungeared agribusiness provides a strong buffer against the current pricing downturn.

Dividend Policy Raises Questions

Presco’s dividend policy has also drawn attention from ana­lysts.

The company significantly increased dividend payouts in recent years, even during peri­ods when earnings did not fully support the distributions.

For instance, the payout ratio reached 201.8 percent in 2023 and remained above 100 percent in 2024. The ratio later normalised in 2025 following the rights issue.

While the current payout level appears more sustainable, analysts note that the company’s historical approach suggests management prioritises divi­dend stability.

Multiple Risks Facing The Sector

Beyond import pressure, the industry faces several additional risks.

Foreign exchange fluctua­tions remain a key concern. For Presco, a weaker naira boosts the value of revenue from its Ghana operations but raises the cost of imported fertiliser. Conversely, a stronger naira can make imported palm oil cheaper, worsening com­petition for domestic producers.

Agronomic Risks Also Pose A Threat

Industry projections assume steady improvements in fresh fruit bunch yields over the com­ing years. However, weather dis­ruptions linked to El Niño could reduce yields by 10 to 15 percent in affected years.

For Okomu, a 10 percent yield shortfall could translate into pro­duction losses of more than 8,000 metric tons and revenue reduc­tions exceeding N13 billion.

Investment Outlook

Despite the current challeng­es, analysts maintain that the Nigerian oil palm sector still has strong long-term fundamentals.

The country’s large produc­tion deficit, rising global palm oil demand and improving planta­tion productivity continue to sup­port a positive structural outlook.

However, the near-term envi­ronment has become significant­ly more uncertain.

Coronation Research main­tains a hold recommendation on Presco, assigning a target price of N2,408.28, which implies only modest upside from its recent market price.

For Okomu Oil Palm, analysts are more cautious, issuing a sell recommendation with a target price of N1,608.58—below its re­cent trading level.

In the short term, the key variable will be how the domes­tic market adjusts to increased imports and reduced tariff pro­tection.

Until that uncertainty clears, analysts say investors may need to be more selective—even in a sector with strong long-term promise.