palm oil and its global supply and demand prospects

Palm Oil and Its Global

Supply and Demand Prospects

WORLD PALM OIL SCENARIOAs shown in Table 1, world palmoil production in 1990 doubled to11.0 million tonnes from a mere 5.0million tonnes in 1980. The follow-ing decade, production doubled to21.8 million tonnes by the year2000. About half of the world palmoil production (10.8 million tonnes)was accounted for by Malaysia.Besides Malaysia, other palm oilproducing countries also recordedfavourable growth in productionduring this period. Indonesia, inparticular, registered a double-digitgrowth of 11.2% per annum withproduction increasing from 2.4million tonnes in 1990 to 6.9million tonnes in 2000. Thailandand Colombia also registered im-

*Malaysian Palm Oil Board,

P.O.Box 10620, 50720 Kuala Lumpur,Malaysia.

pressive growth of 9.2% and 8.8%respectively, albeit with relativelylow hectarage.

Despite the linear upward trend,the world production of palm oilalso experienced a shortfall from17.84 million tonnes in 1997 to16.68 million tonnes in 1998 be-fore it recovered in 1999. This wasdue to the worldwide moisturestress, brought about by the El Ninophenomenon that coincidentallyoccurred at a time when the palmtrees were facing cyclical stress. Palmoil production in Malaysia fellsharply by about 800 000 t to 8.3million tonnes in 1998 from 9.1million tonnes in 1997. Likewise,Indonesian production dropped by380 000t to 5.0 million tonnes from5.38 million tonnes during the

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OIL PALM INDUSTRY ECONOMIC JOURNAL (VOL. 2 (1)/2002)

Source: Oil World (various years); MPOB (2000;2001).

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PALM OIL AND ITS GLOBAL SUPPLY AND DEMAND PROSPECTS

MALAYSIAN PALM OIL

SCENARIOThe palm oil industry is an impor-tant component of the nationaleconomy and especially the agricul-ture sector. Oil palm currentlyaccounts for 58% of the totalcultivated land in Malaysia. Of the3.38 million hectares of oil palmarea in 2000, about 60.0% wasunder private plantation and40.0% under organized andindependent smallholders. Hence,oil palm is an important socio-economic crop for Malaysia. The oilpalm industry provides about halfof the overall agriculturalemployment (1.4 million) in thecountry.Exportearnings contributedby the industry reached RM 19.2billion in 1999, but declined to RM14.9 billion in 2000 due to lowerprices in the world market. Palmoil export earnings accounted for4.0% of the nation’s total export ofmerchandise in the year 2000(Ministry of Primary Industries,2001).

The palm oil industry is a well-developed and persified industryin Malaysia. Aside from the planta-tion and smallholders sectors, thereis a well-established processingsector, which encompasses themilling, refining, crushing andoleochemical subsectors. The statusof mills, refineries, crushers andoleochemical plants operating inMalaysia is as shown in Table 3.Malaysia exports more than 90% ofits palm oil products, with somelevel of processing for edible and

non-edible purposes. The palm oilindustry is now at the stage of seek-ing more value-added products notonly from the oil and kernel but alsoits biomass. In the case of biomass,there is ample opportunity to con-vert the 13.2 million tonnes (dryweight) of biomass per year avail-able in the oil palm sector into pulpand paper, particleboard, mediumdensity fibreboard, furniture etc.(Kamaruddin et al., 1997). Malay-sia is also pushing ahead with thenext phase of the oleochemicalindustry by getting the industry toproduce oleochemical derivativesand finished products.

Although the current averageyield of palm oil is 3.5 tonnes perhectare, it is envisaged that with thedevelopment of new high yieldingplanting materials including clonalplanting materials, the industry canachieve yields of up to 7-8 tonnesper hectare. This will be facilitatedby the aggressive replanting pro-gramme that has been initiated,where about 200 000 ha of palmtrees exceeding 25 years areexpected to be replanted with newplanting materials by mid 2002.Research and Development (R&D)will also continue to develop plant-ing materials with specific traitssuch as high oleic palm oil to meetthe demands of certain markets.Although labour supply is a prob-lem, the advancement in mechani-zation has somewhat reduced thedependence on labour, which isincreasingly sourced from overseas.The Malaysian Palm Oil Board(MPOB) is on the threshold of a

breakthrough in developing a suit-able machine to harvest oil palm -the one aspect of oil palm produc-tion that has been most difficult tomechanize.

INDONESIAN PALMOIL SCENARIOOil palm cultivation in Indone-sia expanded at a tremendous ratein the 1990s. This expansion waspartly brought about by the Indo-nesian Government’s encourage-ment of foreign investment wheretrade and economic liberalization aswell as policy deregulation anddebureaucratization created aconducive investment climate. In-vestment in the plantation sectorwas given priority since this isexpected to increase the socio-eco-nomic standard of people in therural areas. The inability of localprivate investors to raise all the hugefinancial requirements for oil palmdevelopment resulted in the inflowof foreign investments. Companiesfrom Malaysia, the United Statesand Singapore played a major rolein investing in oil palm plantationsin Indonesia. The oil palm areaconsequently increased from 2.03million hectares in 1995 to 3.18million hectares in 2000, an increaseof more than one million hectares.Nevertheless, the country in theearly 2000s was beset with numer-ous economic and social problemsthat derailed many developmentprogrammes, including thoseinvolving oil palm development.Economic uncertainties followed by

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OIL PALM INDUSTRY ECONOMIC JOURNAL (VOL. 2 (1)/2002)

bureaucratic constraints as well as alack of infrastructure have jeopard-ized the flow of investment fundsto the oil palm sector.

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