Malaysia and Singapore Control 2/3 Of Indonesia’s Palm Oil Output


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Sep 27, 2023 | Agricultural Markets News

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Much of Palm Oil’s processing and refining occurs in Indonesia, Malaysia, and Singapore. Malaysia has a well-developed Palm Oil processing industry, reporting a high comparative advantage based on its efficiency. Indonesian companies have been slower to expand their Palm Oil refining capacity. Increased investment in refining capacity has aimed at absorbing the growing Palm Oil supply from medium-scale producers and smallholders and retaining more of the added value from manufacturing in the country.

Vertically integrated companies, from plantation to refinery, have the largest market share in Europe, but not at the global level. These companies are usually more cost-effective, and from a sustainability point of view, it is easier for them to adhere to higher standards. For them, traceability and compliance issues are less challenging.

85% of Palm Oil is produced in Indonesia and Malaysia. Oil Palm plantations began to expand in Peninsular Malaysia in the 1960s thanks to solid state participation. Expansion started in Indonesia a decade later, also through state-owned companies. Governments have withdrawn from the sector today, leaving the ground to private investments.

Palm Oil is produced by three major farming groups: privately owned companies (58%), smallholders (37%), and state-owned companies (6%). Smallholders manage planted areas between 1-25 hectares, farmer cooperatives or groups tend to manage 1,000+ hectare plantations, while companies manage estates from 25 to 300,000+ hectares.

Malaysian industry depends on Indonesian migrant workers, who account for nearly 80% of the plantation workforce. Meanwhile, Malaysian and Singaporean companies, either via direct investments or joint ventures with local companies, control more than two-thirds of the total production of Indonesia’s Palm Oil.

According to AgFlow data, Indonesia exported 1.5 million tons of Palm Oil in July – August 2023. The top markets were India (0.6 million tons), Pakistan (0.2 million tons), the US (0.16 million tons), and Spain (0.13 million tons).

Today, Palm Oil represents around 33% of global vegetable Oil production, having surpassed soybean (29%) and rapeseed (15%) (Statista, 2017). Its share in global vegetable Oil production has more than doubled over the last 20 years, and 70 million tons of Palm Oil were produced in 2018.

Palm Oil is the most profitable among vegetable Oils and commercial high-tree crop Oil and has the lowest production costs. Land use efficiency is significantly higher than its substitutes; it has 6-10 times higher Oil yields than other vegetable Oil crops and is produced on under 10% of the land allocated to all Oil crops (soy requires 40% of the global land allocated to produce just 22% of global vegetable Oils).

Thanks to its significantly higher Oil yield and lower price, Palm Oil is now the primary cooking Oil in large parts of Asia, Africa, and the Middle East. Changes in dietary patterns are also increasing demand; as developing countries’ income and middle class grow, demand for processed food increases, and Palm Oil is a main ingredient.

Palm Oil also owes its popularity to its incredible versatility. The WWF reports that approximately half of supermarkets’ products contain Palm Oil, including shampoos, cosmetics, chocolate, bread, and spreads. Around three-quarters of all Palm Oil is used for food (70%), mainly for cooking and processing. Palm Oil is also an input in biofuel (18%) and the oleochemical industry, which is used in cosmetics and cleaning products (9%).

India’s vegoils export has been a tightrope walk, balancing between domestic demand, international market prices, and governmental regulations. How does one navigate such a complex terrain?

Imagine the vegoils export as a delicate dance, where every step must be carefully choreographed to avoid missteps. On one hand, there’s the need to meet domestic consumption, a dance partner that demands attention. On the other hand, there’s the global market, a fickle partner that can change tempo at any moment.

The government’s role? Think of it as the dance instructor, guiding with policies, incentives, and restrictions. In 2023, the government has been actively promoting sustainable farming practices and supporting small-scale farmers, which has boosted exports and ensured quality.

But what about the challenges? The fluctuating global prices, trade barriers, and logistical issues have been like unexpected twists in the dance, requiring agility and adaptability.

The import of vegoils in India is no less intricate. It’s like assembling a complex puzzle where every piece must fit perfectly. According to AgFlow data, India imported 0.8 million tons of Vegoil from Brazil in July 2023, followed by Malaysia (0.2 million tons) Argentina (0.2 million tons), and Russia (0.15 million tons). Total imports hit 5.5 million tons in Jan-July 2023. India was purchasing large amounts of Vegoil from Indonesia, Argentina, and Malaysia, such as 0.5 million tons, 0.4 million tons, and 0.2 million tons, respectively.

July shipments were the largest in Jan – July of 2023, with 1.5 million tons. The following months were Jun (1.2 million tons), May (1 million tons), Apr (0.7 million tons), Feb (0.5 million tons), and Apr (0.2 million tons).

Malaysia and Singapore Control 2/3 Of Indonesia’s Palm Oil Output

Palm Oil Consumption

Indonesia, India, the EU10, and China are significant consumers of Palm Oil, together accounting for 50% of global consumption. World Palm Oil consumption rose to 62 million tons in 2017 and is expected to increase to 70 million tons in 2019 (USDA). India and China use Palm Oil predominantly for cooking Oil and as an input in the food industry. The growth in demand is positively correlated to increasing incomes, urbanization, and an associated dietary shift towards processed foods. By contrast, in the EU, Palm Oil is used more in manufactured products than directly for cooking, and demand growth has been partly driven by policies supporting biofuels.

Other sources: UNDP

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