Commercial Agriculture: Cure or curse? Malaysian and African experience contrasted


Economic Theory

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Palm oil production could be key in solving rising food costs Agriculture_web_updated.pdf

  • After many years of flat-lining, world food prices rose dramatically in the last years of the first decade of the twenty-first century. This applies to all the major world foodstuffs and the impact has been felt especially by the poor.

  • Increases in the world’s population and improvements in living standards are likely to put further pressure on food prices in coming decades.

  • An important potential solution to this problem is efficient, large-scale plantation agriculture which is feasible for crops such as soya, palm oil and sugar. Such agricultural practices often come under attack from NGO’s.

  • In recent decades there has been a stark contrast between the failure of plantation agriculture in Africa and the success in Asia – especially in Malaysia and Indonesia. Half a century ago Nigeria was the world’s largest exporter of palm oil whereas today it is the world’s 24th largest producer. In Malaysia, however, responding to strong market demand, the cultivation of oil palm trees rose from 46.2 per cent of all cultivated land in 1990 to 77.4 per cent by 2009. Nearly three-quarters of oil palm estates in Malaysia are privately owned.

  • The palm oil industry in Malaysia has a good record with regard to sustainability. Large agribusinesses are able to access capital for long-term investment and they finance a wide variety of environmental schemes. Whilst the state does not adopt an entirely non-interventionist approach, the basic preconditions for developing a successful business economy in this field exist in some Asian countries: property rights are reasonably well defined, as well as enforced, and the rule of law broadly prevails.

  • Currently, palm oil productivity in Nigeria is about one third of the global average and 80 per cent of all production is via smallholders. Yet, there are indications that the Nigerian government is freeing up land ownership rules and opening up the agricultural sector to foreign investors. There are also positive developments in other African countries.

  • Since 2008, governments across the equatorial region of sub-Saharan Africa have awarded concessions totalling 1.5 million hectares for commercial oil plantations. Meanwhile, investors are looking to negotiate a further 1.3 million hectares for oil palm cultivation. Wilmar, Asia’s largest agribusiness and the world’s largest processor of palm oil by volume, announced in august 2012 that it was prepared to invest substantial sums in Africa as a means of meeting global demand. Wilmar has acquired 50,000 hectares of oil palm plantations in Ivory Coast, Uganda and Ghana. It has also now commenced a programme to develop palm oil plantations in Nigeria. These developments are not entirely free from inappropriate government intervention but they do represent progress.

  • Where there is government intervention in agriculture, it should be supportive of private business rather than directing it. In particular, it is important that business can work in a stable legal environment with well-established property rights in the relevant forest areas so that long-term investment can take place. The pace at which we may witness a renaissance in the West African agricultural sector will hinge on the willingness and ability to tackle the present barriers to efficient production. In Nigeria, this means tackling corruption and unwieldy bureaucracy as well as ensuring that property rights are observed.

The research featured in City AM.

To read the press release, click here

2013, Discussion Paper No. 48.

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