Connect with us

Business

9% interest on palm oil loans unable to sustain local production – Stakeholders

Published

on

Spread The News

Local palm oil producers have said that the nine percent interest rate applicable to loans under the Central Bank of Nigeria’s Anchor Borrowers’ Scheme was too high and would not be able to spur and sustain local production of palm oil.

The CBN had included palm oil in its list of 41 items not eligible for foreign exchange at the interbank market.

The apex bank expressed worry that Nigeria had spent billions of dollars on the importation of palm oil in the past 10 years and had moved to boost local production to stem importation.

To support its plan to boost local production, the CBN had in March unveiled a single-digit interest loan for the palm oil subsector to be accessed through the Anchor Borrowers Programme and the Commercial Agro Credit Scheme.

While speaking during a stakeholders meeting with major palm oil producers, Godwin Emefiele, CBN governor, said producers could access up to N10bn at single-digit interest rate of nine percent.

However, the producers have said that operating tree crops with four-year maturity on a loan that had annual interest rate of nine percent would be suicidal despite the two-year moratorium.

Henry Olatujoye, the national president, National Palm Produce Association of Nigeria, said nine percent interest rate was too high for oil palm produce.

He said, “If one obtains a minimum loan of N1bn at an interest rate of nine percent, one would be paying N90m every year.

“It takes four years for oil palm tree to fruit. It then means that the person will pay N360m on interest alone by the time the fruits come out.”

Olatujoye suggested adopting the Malaysian model in growing the palm oil subsector.

He said, “In Malaysia and other countries that are large producers, the government invests in oil palm plantations belonging to individuals and families.

“They fund the plantations, paying family members every year to plant the crop under a special arrangement.

“In other parts, the interest on loan for palm oil is two per cent or less.”

Victor Iyama, a doctor and the national president, federation of all commodities association of Nigeria, also faulted the interest rate.

He said that the interest rate could only be applied to crops such as rice and cassava that had maximum gestation period of three to four months and not tree crops with four-year minimum gestation period.

He suggested that the interest rate be brought down to four percent due to the peculiar situation in Nigeria.

He said, “Ideally, agriculture loan should not attract interest rate of more than two percent. In Japan and China, agriculture loan attracts interest rate of less than two percent.

“If the interest on ABP is nine percent; at what point should the borrowers start paying? Unless the interest will mature in four years when the crops start yielding; if not, then it is not sustainable.

“Tree crops should have special rate of interest and should not be included in the category of other crops in the ABP. Maybe they should attract four per cent interest rate (which is even too high) because of the peculiar situation in Nigeria.”

Graham Hefer, the managing director of Okomu Oil, whose firm had benefitted from the ABP also agreed that finance at acceptable interest rate was critical for tree crop companies with long gestation period as its took them eight to 10 years to break even.

He said, “It takes three years before one fruiting bunch is seen on a palm tree and six to seven years, thereafter, before the palm reaches profitability based upon yield.

“So, this is long term development which is not performed in a year like annual crops. Also, to get palm from the nursery to maturity in three years costs almost $5,000/ha.

“Not many companies, let alone individuals, have that kind of funding readily available, especially in an environment that is risky.”

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published.

Trending