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SUSTAINABLE PALM OIL PRODUCTION: ECONOMIC ANALYSIS OF ENVIRONMENTAL POLICIES AND MARKET COMPETITIVENESS IN NIGERIA

Abstract

The palm oil industry represents a critical economic sector in Nigeria, contributing substantially to agricultural output, employment generation, and foreign currency acquisition. While its economic importance remains undisputed, the sector grapples with enduring sustainability dilemmas, particularly concerning environmental degradation and shifting market expectations shaped by global ecological standards. This study conducts a comprehensive assessment of environmental policy mechanisms and their implications for sustainable palm oil production practices in Nigeria, specifically examining how these factors influence the country’s position within international markets. Methodologically, the research employs the Policy Analysis Matrix (PAM) framework combined with sustainability models emphasizing waste utilization, evaluating comparative economic benefits, distortions arising from policy interventions, and opportunities for value-added product innovation. Findings reveal that while Nigeria possesses natural competitive advantages in palm oil production, institutional weaknesses in environmental regulation coupled with infrastructural inadequacies undermine sectoral sustainability and export performance. The paper proposes targeted policy measures to enhance environmental compliance systems, improve resource efficiency, and stimulate technological advancement through bioprocessing innovations and product diversification. These recommendations contribute to academic discourse on balancing economic development objectives with environmental conservation imperatives in emerging economies.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Palm oil production has historically served as a cornerstone of Nigeria’s agricultural economy, with its origins deeply embedded in the colonial period. During the 1960s, Nigeria emerged as a dominant force in the global palm oil export market. However, production has since experienced a marked decline due to deteriorating plantation infrastructure, suboptimal yield performance, and increasing competition from alternative oilseed crops (Abdul-Qadir et al., 2016). The tropical climate prevalent in southern regions such as Edo, Delta, and Imo States provides ideal conditions for cultivating Elaeis guineensis, facilitated by favorable rainfall distribution and soil characteristics. Despite an annual production capacity of approximately 1.3 million metric tons, domestic demand surpasses supply at 1.6 million metric tons, necessitating substantial import volumes (Abdul-Qadir et al., 2016). This persistent supply-demand gap underscores the critical need for comprehensive sectoral revitalization strategies.

Sustainable palm oil production emphasizes ecological conservation, aiming to reduce deforestation rates, biodiversity loss, and carbon emissions while ensuring economic viability. The Roundtable on Sustainable Palm Oil (RSPO) has established itself as a principal global standard-setting body, influencing both market trends and consumer preferences (Tey et al., 2020). In Nigeria, adoption of these standards remains at a nascent stage, with smallholder farmers responsible for 91% of total output primarily relying on unmanaged wild groves, which compromises both efficiency and long-term sustainability (Technical Committee on Agricultural Raw Materials, 2013). Although regulatory frameworks such as the National Policy on the Environment and the Nigerian Agricultural Promotion Policy (NAPP) advocate for reforestation efforts, waste minimization, and reduced agrochemical usage, inconsistent enforcement persists, as demonstrated by ongoing deforestation linked to plantation expansion activities (Abogunrin-Olafisoye et al., 2024).

From an economic perspective, the palm oil value chain offers extensive opportunities for diversification, extending beyond crude extraction into sectors such as biodiesel production, cosmetics manufacturing, and pharmaceutical applications (Amafade & Ovharhe, 2024). Market viability is influenced by production costs, technological adoption rates, and policy frameworks. Policy Analysis Matrix (PAM) evaluations reveal that Nigeria maintains comparative advantage, evidenced by Domestic Resource Cost (DRC) ratios consistently below 1 across various production scales (Abdul-Qadir et al., 2016). However, negative net transfers and subsidy patterns indicate implicit taxation of producers, which disincentivizes investment in sustainable cultivation methods.

Achieving equilibrium between environmental preservation and economic practicality remains crucial for Nigeria, where the palm oil industry supports millions of livelihoods while simultaneously intensifying ecological pressures. Recent policy developments, including the National Action Plan on Sustainable Palm Oil (NaPOTS), seek to align domestic production with international sustainability standards, thereby fostering employment generation and poverty alleviation (BusinessDay, 2025). This study examines these complex interdependencies, evaluating how rigorous environmental policies might enhance economic outcomes and strengthen Nigeria’s competitive position within the global palm oil market.

1.2 Statement of the Problem

Despite Nigeria’s favorable natural conditions for palm oil cultivation, the sector suffers from persistent inefficiencies and unsustainable practices that compromise its environmental and economic viability. Rapid deforestation linked to oil palm plantation expansion has severely degraded ecosystems, accelerating biodiversity decline and increasing susceptibility to climate-related impacts (Abogunrin-Olafisoye et al., 2024). Regulatory frameworks intended to mitigate these issues remain largely ineffective, undermined by institutional weaknesses such as enforcement gaps, systemic corruption, and insufficient cooperation between government agencies and rural communities (Amafade & Ovharhe, 2024). This has perpetuated reliance on outdated wild grove harvesting methods, which are neither environmentally nor economically sustainable.

From a productivity standpoint, Nigeria’s palm oil sector lags far behind leading producers like Malaysia, with yields stagnating below 1 ton per hectare roughly one-fifth of international benchmarks (Abdul-Qadir et al., 2016). High input costs, coupled with this chronic underperformance, render Nigerian palm oil uncompetitive in global markets. Paradoxically, the country spends substantial foreign exchange importing palm oil derivatives despite possessing vast untapped agricultural potential. This import dependency reflects deeper structural constraints, particularly the inability to meet stringent sustainability certification requirements such as the Roundtable on Sustainable Palm Oil (RSPO) standards (Tey et al., 2020). Post-production challenges further constrain sectoral growth, including obsolete processing infrastructure, logistical bottlenecks in transportation networks, and nonexistent cold storage systems that collectively contribute to significant post-harvest waste (Amafade & Ovharhe, 2024).

Compounding these issues are adverse policy environments characterized by negative effective protection rates, which actively discourage adoption of modern cultivation techniques (Abdul-Qadir et al., 2016). Marginalized smallholder producers the primary workforce in the sector face systemic disadvantages including restricted financing options, minimal access to technical support services, and exclusion from formal value chains. Unless transformative interventions address these multidimensional challenges, Nigeria risks irreversible environmental damage alongside missed opportunities for agricultural industrialization and export diversification.

1.3 Objectives of the Study

The main objective of this study is to conduct an economic analysis of environmental policies and their impact on the market competitiveness of sustainable palm oil production in Nigeria.

The specific objectives are:

1. To examine the historical and current status of palm oil production in Nigeria, highlighting sustainability challenges.
2. To analyze the effectiveness of existing environmental policies in promoting sustainable practices within the palm oil sector.
3. To evaluate the economic implications of these policies on production costs, profitability, and comparative advantage.
4. To assess Nigeria’s market competitiveness in the global palm oil trade, considering sustainability certifications and value addition.
5. To propose policy recommendations for enhancing sustainability and competitiveness in the Nigerian palm oil industry.

1.4 Research Questions

The study seeks to answer the following questions:

1. What is the current state of palm oil production in Nigeria, and what are the key sustainability issues?
2. How effective are Nigeria’s environmental policies in addressing deforestation, waste management, and emissions in the palm oil sector?
3. What are the economic effects of these policies on the profitability and efficiency of palm oil production systems?
4. How does Nigeria’s palm oil industry fare in terms of market competitiveness, particularly in export markets requiring sustainable sourcing?
5. What strategies can be implemented to improve the integration of environmental policies with economic goals for sustainable palm oil production?

1.5 Research Hypotheses

The following hypotheses will be tested:

H01: There is no significant relationship between the implementation of environmental policies and the sustainability of palm oil production in Nigeria.

H02: Environmental policies do not significantly impact the economic profitability of palm oil production systems.

H03: Sustainable practices, such as waste utilization and certification, have no effect on Nigeria’s market competitiveness in the global palm oil trade.

1.6 Significance of the Study

Despite Nigeria’s natural advantages for palm oil production, the sector faces persistent sustainability challenges that hinder both environmental integrity and economic viability. The environmental consequences of oil palm expansion are severe, with deforestation driving biodiversity decline and heightening climate vulnerabilities, as evidenced by Nigeria’s ongoing forest cover loss. Weak policy enforcement, compounded by corruption and insufficient stakeholder participation, perpetuates reliance on outdated wild grove systems.

Economically, Nigeria struggles with low productivity, producing far below global benchmarks, while high operational costs further erode competitiveness. This underperformance is reflected in the country’s heavy reliance on imports, despite possessing substantial domestic potential. The global shift toward sustainable palm oil sourcing exacerbates these challenges, as Nigerian producers lack necessary certifications. Poor infrastructure, including insufficient processing and cold storage facilities, further constrains value addition, leading to post-harvest waste and diminished returns.

This research holds significant implications across multiple dimensions. For policymakers, it offers critical insights into environmental policy reform, potentially informing adjustments to national frameworks. The economic analysis provides actionable recommendations for producers regarding value-addition technologies and sustainable production methods. Academically, it advances understanding of agro-economic and environmental policy dynamics in developing contexts, particularly regarding African palm oil sustainability.

Beyond sector-specific impacts, the study aligns with broader sustainable development objectives by advocating circular economy approaches. Such strategies could simultaneously address environmental concerns while creating rural employment opportunities and stimulating economic growth.

1.7 Scope of the Study

This study examines sustainable palm oil production in Nigeria through an economic lens, analyzing environmental policies and market competitiveness. The research concentrates on key producing regions within the South-South and South-East geopolitical zones, encompassing states such as Edo, Delta, Imo, and Enugu. The temporal framework extends from 2010 to 2025, incorporating recent policy initiatives including the National Agricultural Promotion Policy (NAPP) and the National Palm Oil Transformation Strategy (NaPOTS). Secondary data sources comprise scholarly literature, government publications, and industry reports, supplemented by primary survey data where necessary in subsequent sections. While excluding technical engineering specifics of processing equipment, the study incorporates economic dimensions of value addition processes.

1.8 Limitations of the Study

Potential limitations emerge from the reliance on secondary data, which risks being outdated or inconsistent as a consequence of inadequate record-keeping practices within Nigeria’s agricultural sector. Restricted access to proprietary industry data may further constrain the depth of competitiveness analysis. While the study prioritizes environmental policy considerations, socio-political dynamics, such as regional conflicts in production areas, may not be sufficiently accounted for. Time and resource limitations could narrow the scope of fieldwork, though compensatory measures, including comprehensive literature review, will be employed to ameliorate this concern. Notwithstanding these constraints, the findings retain applicability to analogous agro-industries across sub-Saharan Africa.

1.9 Definition of Terms

• Sustainable Palm Oil Production: Practices that ensure long-term viability of oil palm cultivation without depleting natural resources, including zero-deforestation and efficient waste management (Abogunrin-Olafisoye et al., 2024).
• Environmental Policies: Government regulations and frameworks aimed at protecting ecosystems, such as those addressing emissions and land use in agriculture (Amafade & Ovharhe, 2024).
• Market Competitiveness: The ability of Nigerian palm oil to compete in domestic and international markets based on cost, quality, and sustainability standards (Abdul-Qadir et al., 2016).
• Policy Analysis Matrix (PAM): A tool for assessing private and social profitability, comparative advantage, and policy impacts in agricultural systems (Abdul-Qadir et al., 2016).
• Value Addition: Processes that enhance the economic worth of palm oil through refining, fractionation, and product diversification (Amafade & Ovharhe, 2024).

References

Abdul-Qadir, M. I., Okoruwa, V. O., & Salman, K. K. (2016). Competitiveness of oil palm production systems in Nigeria: A policy analysis matrix approach. International Journal of Hybrid Information Technology, 9(5), 231-250. https://doi.org/10.14257/ijhit.2016.9.5.19

Abogunrin-Olafisoye, O. B., Adeyi, O., Adeyi, A. J., & Oke, E. O. (2024). Sustainable utilization of oil palm residues and waste in Nigeria: Practices, prospects, and environmental considerations. Waste Management Bulletin, 2(1), 214-228.

Amafade, U. G., & Ovharhe, O. J. (2024). Oil palm production value addition in Nigeria: The way forward. World Journal of Advanced Research and Reviews, 21(3), 2009-2017. https://doi.org/10.30574/wjarr.2024.21.3.0899

BusinessDay. (2025, July 27). Nigeria’s NaPOTS framework is more than policy achievement. https://businessday.ng/news/article/nigerias-napots-framework-is-more-than-policy-achievement/

Chiemela, C. J., Ukwuaba, I. C., Ugbede, O. E., Ibe, J., & Onyekwe, C. N. (2020). Economics of palm oil production in Nsukka Local Government Area, Enugu State, Nigeria. Journal of Agriculture and Food Sciences, 18(1), 45-56.

Technical Committee on Agricultural Raw Materials. (2013). Analysis of incentives and disincentives for palm oil in Nigeria. Monitoring African Food and Agricultural Policies Project.

Tey, Y. S., Brindal, M., & Djama, M. (2020). A review of the financial costs and benefits of the Roundtable on Sustainable Palm Oil certification: Implications for future research. Sustainable Production and Consumption, 24, 112-125.