Before joining DekelOil in September 2011, Lincoln John Moore was Chief Financial Officer of Sierra Leone Agriculture (now owned by the Siva Group). He is also a co-founder and former director of Ragnar Capital, where he played a key role in raising over $US50 million for oil palm projects in West Africa (including Siva’s investment of over €8 million in DekelOil).
According to Lincoln Moore, West Africa is set to become a major player on the world palm oil scene. It is also developing into a major market with high potential – an opportunity that Israeli Rina Group’s (RG’s) Côte d’Ivoire subsidiary and RG’s Indian partner Siva Group are seizing by building a major, asset-backed West African palm oil complex.
Q: Dekel Oil recently started producing palm oil in Côte d'Ivoire at its mill at Ayénouan. How are things coming along?
In Côte d'Ivoire, we started producing crude palm oil (CPO) at our 60-tonne-an-hour capacity extraction mill in March. With its capacity of 70,000 tonnes of CPO a year, it is one of the largest mills in West Africa today. Around 90% of our palm oil fruit comes from smallholders. We have roughly 5,000 long-term contracts with farmers in the region, covering about 27,000 ha of oil palm.
Historically, there was a problem in the sector, as there was actually more produced by smallholders than there was milling capacity. So we are filling that gap, which gives the smallholders the confidence to continue planting and putting fertiliser on their plantations, in the knowledge that they have a customer that can take all of their product.
Q: How big at present are your plantations in Côte d'Ivoire?
We have a nursery, and we have planted around 2,000 ha. We aim to plant another 5–6,000 ha close to the mill, meaning that the medium-term blend will be 30% from our own estates and 70% from smallholders. We don’t want to plant any more company hectares than this, as we want smallholders to plant more – we’re in a position to take all of the smallholder production. If we plant any more, we’d start competing with the smallholders, which would undermine our good relations.
We also have a second project where we have rights to develop 24,000 ha. We will consider commencing this development in early 2015.
Q: Compared to existing Ivorian industries like Palm-CI, how do you stand in Côte d'Ivoire?
The biggest producer of palm oil in Côte d'Ivoire is Palm-CI, jointly owned by Olam and Wilmar. They produce around 80% of the country's palm oil. Their model is slightly different from ours, as 50 or 55% of their fruits come from their own estates and 45% from smallholders. And they continue to steer towards owning company estates. Over time we expect Palm-CI production will derive predominantly from company-owned estates, whereas DekelOil’s production at its first mill site will be derived primarily from smallholders.
Q: Is your production for the local, regional or international market?
At the moment, we are selling all of our oil to a refinery owned by SAR (Société Africaine de Raffinerie) which have related party interests in some of the key supermarket chains in Côte d'Ivoire, and are producing cooking oils, butter and soap for their supermarket chains. More refined products that can't be soaked up on these markets are exported. So refined palm oil is exported within West Africa, where there is quite à bit of demand.
Q: So you don’t go out directly onto the market?
No, we are in the fortunate position where we are selling it basically at the factory gate to the refineries, so we don’t have to deal with the logistics of export.
Q: Are you planning on undertaking the refining at any stage?
At the moment we’ve just started out on our operation. I think our major goal in the short term will be to plant more company hectares in different regions and develop more palm mills. But refining would be on the agenda in the medium or long term.
Q: All the recent campaigning on the international scene has been very hostile to palm oil. How has this affected you – if at all?
The pressure that you’re speaking about mostly refers to south-east Asian palm oil production, specifically production in Indonesia, where there are environmental sensitivities. In terms of West Africa generally, there aren’t the same sensitivities: a lot of the areas where people are planting are land that has previously been cleared, or that is in use for other forms of agriculture.
In our project, 90% of our fruits are coming from existing farms. So we don’t have to clear large areas for our mill, and we’re helping to increase the efficiency of land use of existing palm oil estates. In terms of our own estates, the majority has been previously used for palm oil, cocoa or rubber. We are a member of the Roundtable on Sustainable Palm Oil (RSPO), and we comply with the RSPO standards.
Q: In the EU market at least, it was also a health issue…
There is research in the USA that suggests that palm oil is a healthy alternative to other trans-fat products. The reality is that palm oil yields per hectare are substantially higher than any other edible oil, so you would expect to it be a key product for the future.
But certainly we are mindful of the other broad issues of the EU market wanting to be associated with sustainable oil.
We are a member of the RSPO, and we follow all the key aspects of the guidelines that are applicable to us. The step of becoming a certified palm oil producer is something that we need to work through over time, and it will become more applicable to us when we move to export. It's a process that many need to go through worldwide, as very few are currently certified. I’d suggest that the way we produce our palm oil from existing farms suggests that we would be able to be certified.
For the time being, we are selling all of our product in Côte d'Ivoire. And when we expand, I expect that we will sell our palm oil to West African countries where there is still an import requirement. We are not exporting to Europe or the US as yet. It's something that we can consider over time.
Q: Do you think that one day West Africa could become a major world palm oil player?
West Africa at the moment has a net import demand of roughly 800,000 tonnes of CPO per annum. Production in Côte d'Ivoire is about 300,000 tonnes, and with the different West African countries, production adds up to about 1.5 million tonnes of CPO. West Africa represents about 3 to 5% of world production, which is extremely low.
West Africa is perfectly capable of becoming a substantial player in the palm oil industry. Today, pretty much all five of the largest palm oil companies in the world from south-east Asia have started operations in West Africa. They are obviously more comfortable in their own backyard in south-east Asia. But as there is a lack of large areas of land available, they are looking to West Africa for the growth side of palm oil production. The expectation is that within the next 20 years, West Africa will be a pretty serious player in terms of palm oil production.
And we shouldn’t forget that palm oil originated in West Africa – that’s where it all started. It's actually the Malaysians who took the idea and ran with it in their own country, where the rainfall is pretty similar. In West Africa, the market didn't really grow for years, but that is dramatically changing at the moment. Liberia, Sierra Leone, Ghana, Nigeria, Côte d'Ivoire and Cameroon are all set to be big producers of palm oil.
Q: Is West Africa’s palm oil competitive?
West Africa's palm oil yields are on average 15 to 20% lower than the average yield in Malaysia or in Indonesia. The main driver is that rainfall in Malaysia and Indonesia is more consistent and more evenly spread out throughout the year, so yields are higher.
In terms of the cost of producing a mature palm oil plantation in West Africa, it is a bit lower than in Malaysia or Indonesia because the cost of land is significantly lower. In Indonesia or Malaysia, a hectare of good farmland costs about US$2,000, and you need to add US$4–5,000 to get the trees through to maturity, whereas in West Africa, the cost is more like US$3,000 a hectare on average. In terms of land clearance, since you have slightly less rainfall, there is less to clear in West Africa.
Q: What are the main pros and cons of developing palm oil for international trade in West Africa?
It’s difficult to generalise, because each country is different. But, overall, the amount of land is there to sustain large-scale palm oil development. For governments, it is attractive to bring in palm oil investments because it is labour intensive and a proven profitable business model. I guess the main obstacle for players, particularly outside of the major south-east Asian players, is access to capital.
Between most countries in West Africa, trade is relatively straightforward. Of course, each country has its own tariffs and regulation: for example, Nigeria is keen to increase its own palm oil production, as the level of imports is high. But, for most countries, palm oil trade is straightforward. It is really just a matter of time before West Africa becomes a very significant producer of palm oil and a real player in the market.