Banks urged to support oil palm sector

Banks and other financial institutions have been challenged to take a strong stance in providing  financial incentives to support the oil palm sector, as the commodity’s value chain holds great potential to be the next economic driver and improve rural livelihoods.

“From the government side, nobody gives the smallholder farmers any financial support. The banks also continuously deny them financial support; this is a major hindrance to the survival of the oil palm industry.

“Investors and banks must begin to invest heavily in oil palm value chain as this can allow them to push for best practice via responsible investment standards, and limiting their financial services to certified sustainable companies. 

"Oil palm growers ultimately rely on their own little financial support to balance their books and finance further expansion of their plantations; this is not helping the sector to achieve the expected growth,” Rosemary Addico, Country Manager, Oil Palm Ghana, Solidaridad told participants drawn from the country’s financial sector including the commercial banks, rural banks microfinance institutions, and savings and loans institutions at a two-day programme at  Cape Coast in the Central Region.

The programme was aimed at sharing knowledge and expertise with practitioners from the financial sector, and was part of efforts to improve the knowledge of finance suppliers as to dynamics in the oil palm sector and also enhance more investments to the sector.

Spearheaded by Solidaridad the programme seeks to achieve objectives of the Sustainable West Africa Oil Palm Programme (SWAPP), targetted at ensuring that oil palm growers have access to finance.

It again focused on working to encourage and enable more risk capital to flow into the oil palm sector by de-risking capital investments, improving expected returns and raising awareness, and also building on and sustaining the knowledge and experience created by the broader SWAPP programme by transferring and embedding the expertise within self-sustainable commercial entities.

The SWAPP of Solidaridad West Africa seeks to improve income and livelihoods from oil-palm through increasing farm productivity and the efficiency of processing mills.

Addico observed that the financial institutions continuously denying access to funding for supporting farmers and players in the oil palm value chain imposes major threats to the industry’s survival and sustainability.

She maintained that the financial institutions stand to benefit hugely as investors; explaining that banks can take advantage of opportunities in the area of financing development of smallholder schemes in collaboration with plantations, and also financing the establishment of farm services companies. 

She again advised participants help make available credit for artisanal mills to purchase efficient processing machines, providing credit to women groups to purchase processing machines, creating financial products to support farm rehabilitation and yield intensification activities.

In Ghana, an estimated total land area of 305,758 hectares is cropped to oil-palm, with a production level for palm oil of under 300,000m/t -- leaving a supply deficit of 35,000mt.

With increasing demand trends, especially in the healthcare, pharmaceutical and body-lotion industries, the deficit could hit more than 100,000m/t in the not too distant future.

In an interview with the B&FT, Mr. Delle Kpebesaan, Regional Programme Manager, Solidaridad West Africa, challenged operators in the financial sector -- especially the banks -- to consider the oil palm sector as a profitable sector with enormous potential worth investing in.

He assured that investing in the oil palm value chain will help secure their profit margins and ensure returns on their investment, which will ultimately grow the country’s agriculture industry.

“Our work will be incomplete if we do not help farmers to increase their yields; if farmers do not have access to financial resources or services that can make them add value to the commodity, which will lead to productivity that will be expected.

“Those of you who still have excess liquidity sitting on your balance sheet, go back to the balance sheet and consider diversifying your portfolios and invest into viable ventures like the oil palm sector.”

He observed that there is share absence of financial facilities and support for people engaged in the country’s oil palm production.

“As a programme we think that not paying attention to the value chain will not help us attain the result we want to achieve, and hence inclusion of the financial institutions at this time.”

He was optimistic that creating the platform would help financial institutions come together with the programme’s people to dialogue and understand the sector.

“The financial institutions have resources; they are interested in investible and bankable business plans, and for various reasons these have to be done based on information available."

He said Solidaridad will be supporting farmers and other players in the value chain to develop good business ideas that can attract banking and financial institutions to invest in.

“At the level of financial institutions, we are also interested in further deepening their understanding of the sector so in the end we will form a kind of tripartite platform; ourselves, the financial institutions and the smallholders we work with so that on a more regular basis there is always a conversation at the downstream side of the event, the middle-stream side of the event, and the upper-stream side of the event.”

Palm oil and its derivatives are used in a wide array of packaged foods by consumer-facing brand companies, including ice cream, cookies, crackers, chocolate products, cereals, breakfast bars, cake mixes, doughnuts, potato chips, instant noodles, frozen sweets and meals, baby formula, margarine, and dry and canned soups. 

About 76% of palm oil is used for foods, with the remainder used for industrial purposes including bio-diesel.