Palm oil breeds newest crop of billionaires in Kenya

Palm oil has lifted entire communities out of poverty, and created tycoons in Malaysia and Indonesia.

Before leaving your house this morning, you likely ate or took a shower using a product with this unique oil.

It is the most-widely used vegetable oil globally, and it is found in everything, from soap and cereal to bread and cosmetics. You use it every time you brush your teeth, wash your hair or apply lipstick.

It is estimated that about half of all packaged products sold in supermarkets contain palm oil. And as a result, the oil has produced the region’s latest crop of billionaires.

There is Vimal Shah and family, who control the cooking oil and soap business, and then there are the owners of Kapa Oil (the makers of Kasuku), Pwani Oil, Menengai Oil Refineries, Edible Oils Processors and many others.

And with ever-rising global commodity prices, these businessmen are riding on the fruit of the oil palm tree to mint billions of shillings.

What makes the crop so profitable is that it yields more oil than any other agricultural commodity, such as sunflower or soya beans, two other crops used extract oil.

Largest producers

Palm oil growing ties up more than 42 million acres worldwide, with Indonesia being the largest producer of palm oil, followed by Malaysia. The two countries account for about 85 per cent of the world’s palm oil production.

There has recently been an increase in the oil’s production in South America through Colombia, Ecuador and Guatemala.

The second-largest global vegetable oil, soya, takes up 120 million hectares, which produce about 48 million tonnes of soya oil.

On average, the oil palm tree yields more than 10 tonnes of produce per hectare per year, dwarfing cash crops such as tea and coffee by far.

Commodity experts say demand for palm oil has been going up since the 1970s, making it a valuable and profitable business worth $50 billion (Sh5 trillion) a year. It is projected to rise to $88 billion (Sh8.8 trillion) by 2022.

The crop, however, is yet to take root in Kenya on a large scale. But studies done by the Kenya Agricultural and Livestock Research Organisation (Kalro) have shown that the oil palm tree can grow along the Equator, particularly in Western Kenya.

This means oil palm could become an alternative cash crop for residents of Western and Nyanza regions, who mainly rely on sugarcane farming.

Palm oil has lifted entire communities out of poverty, and created tycoons in Malaysia and Indonesia. One of these tycoons is Kuok Khoon Hong, a 66-year-old Singaporean commodities magnate. He is known as the ‘Palm Oil King’, and is a member of one of Asia’s most powerful business clans.

Mr Hong is also the co-founder and chairman of Wilmar International, which is cited as the world’s largest palm oil firm. His net worth is estimated at $2.5 billion (Sh250 billion). He is the nephew of Malaysian billionaire Robert Kuok, who is himself worth $11.5 billion (Sh1.2 trillion) and the richest man in Malaysia.

However, as land becomes scarce in Indonesia and Malaysia, multinationals are turning their eyes to Africa in search of their next growth spurt.

Already, Hong has partnered with Mr Shah of Bidco Oil to set up East Africa’s largest plantation in a deal with the government of Uganda. The palm oil project, in the Kalangala Islands of Lake Victoria, is being carried out by Oil Palm Uganda Ltd (OPUL), a subsidiary of Bidco Uganda, which itself is a joint venture between Wilmar International, Josovina Commodities and Kenya-based Bidco Oil.

Wilmar International holds 39 per cent of shares in the joint venture, and is providing technical expertise for the project. Wilmar is one of world’s largest oil palm plantation owners, with a total planted area of 240,956 hectares as at December 31 last year, according to the firm’s 2015 financial reports.

Additional financing

For the Kalangala project, additional financing comes from the Ugandan government and the United Nations International Fund for Agricultural Development (Ifad). OPUL has planted 6,200 hectares of palm oil, with individual farmers holding 4,400 hectares.

“We believe we have developed one of the best oil palm plantations in Africa in Kalangala, and the local people have benefitted tremendously from the project,” Wilmar said in a recent statement.

However, controversy has dogged the project. According to Friends of the Earth International (FEI), OPUL is involved in a long-running dispute over land with local communities in Uganda. Government officials believe this is an attempt by activists and NGOs to make money.

“These claims are driven by NGOs whose aim is to get funding. They are using our people to enrich themselves,” said Kalangala District Local Government Chairman Lugoloobi William.

Mr Lugoloobi said the government is happy with the project as it has transformed the area.

“We are encouraging many people to grow palm oil to improve their living standards. Many have already expressed interest in growing palm in other regions in the district,” he said.

OPUL’s management says land is owned by the government.

“We don’t own the land – it’s the Ugandan government that leases land to us,” said OPUL and Bidco Uganda Financial Controller Janardhan Naidu.

The plantation yields about 14 tonnes per hectare per year, with Mr Naidu saying farmers on average earn about USh1.2 billion (Sh36.1 million) per month.

He said farmers’ representatives are also involved in determining the price of harvested oil palm seeds on a monthly basis, based on international prices. Crude palm oil from OPUL is sold to Bidco Uganda for processing.

Total earnings

Hong has already made inroads in Nigeria, Ghana and Tanzania.

Wilmar is the world’s largest processor and merchandiser of palm and lauric oils, as well as palm kernel and copra crusher.

In Tanzania, Wilmar holds a 45 per cent stake in Murzah Wilmar East Africa Ltd, a firm that manufactures and trades in cooking oil, cooking fat, soaps and detergents, plastic containers and furniture.

Wilmar also holds a 67 per cent stake in Wilmar Africa Ltd and its subsidiary in Ghana that deals in general trading in agricultural products, oil palm plantations and manufacture of crude palm oil.

According to its financial reports, Wilmar International generated Sh204.4 billion in revenue from Africa last year.

However, the continent accounted for just a small fraction of total earnings, as the firm generated Sh3.9 trillion from its global operations in 2015.

In Kenya, there have been reports that the UK’s Robinow brothers, Richard and Jeremy, would abandon sisal for palm oil after they bought out Rea Vipingo and delisted it from the Nairobi Securities Exchange.

Rea Vipingo is the largest producer of sisal on the continent, but the crop faces stiff competition from synthetic materials.

The Robinow brothers have extensive knowledge on growing oil palm through REA Holdings’ operations in Indonesia.

The REA group is principally engaged in the cultivation of oil palms in the province of East Kalimantan, and in the production of crude palm oil and palm oil products

The brothers also own land along the Kenyan coast, a good location for the oil palm tree as the crop grows best where there is sufficient water and plenty of sunshine.

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