Global Timber Trade - Information

Palm oil

 

Chart 1 - the market for all primary derivatives of palm oil seems to have peaked in 2009

Source: based on UN Comtrade

Chart 2- the market for simply refined palm oil in most importing countries/regions has peaked

Source: based on UN Comtrade


Palm oil
One this webpage, "palm oil" is defined as commodities whose customs codes (under the World Customs Organisation's Harmonised System of classification) are 151110 (crude palm oil), 151190 (simply refined palm oil), 151321 (palm kernel oil), 151329 (simply refined palm kernel oil) and 230660 (palm nut or kernel cake).

Indonesia and Malaysia supply the great majority of world trade in palm oil.

Chart 1 above indicates that simply refined palm oil and, to a much lesser extent, crude palm oil comprise almost all of those two countries' exports of palm oil. That chart also shows that simply refined palm oil from Indonesia is the only one of the five primary derivatives of palm oil whose exports are increasing in terms of weight.

Chart 2 above suggests that, although the total weight of simply refined palm oil exported from Indonesia and Malaysia has fluctuated anually during the last five years, the trend has been flat. This tends to imply that the market for palm oil has peaked.

It would seem from this that the world market for palm oil is now saturated (supply being in equilibrium with end-use) - and that those who persist in investing in new commercial palm oil plantations have not been carrying out due diligence.

The market would decline considerably if countries to which Indonesia (in particular) exports palm oil implement legislation prohibiting the placement of illegal palm oil (including derivatives thereof, particularly fuel such as biodiesel) on the market. However, for that legislation to have significant impact on production, it would need to be implemented more robustly and strategically than has been the case in relation to the USA's amended lacey Act and the EC's regulation 995/2010 (concerning wood-based products.

Roughly three quarters of Indonesia's palm oil production is likely to be illegal in so far as it derives from land which was illegally cleared (from forest)[pp47-48] - perhaps including at least some of the RSPO certified palm oil which the EU's leading importers procure.

In addition, the area of land being prepared for palm oil plantations has increased rapidly during recent years. The output from this expansion is already (given Chart 2 above) likely to result in a glut - and the returns to those who have "invested" (perhaps speculatively) in the deforestation which has preceded that expansion might be negative.

Further (legal or illegal) authorisations to clear forest for palm oil would appear to be particularly negligent, being perhaps more closely linked to rent seeking and patronage than economic wisdom. Indeed (as in the past), the primary motivation for seeking such authorisations may be to generate cash from deforestation - and this might be a factor contributing to proposals for Indonesia to lift its ban on the export of logs.

The Government of Indonesia has recently reiterated plans to clear 14 million hectares of forest - despite demand for palm oil having peaked and despite implicitly seeking to accelarate climate change due to the long term greenhouse gas emissions which that forest clearance will cause.

The impact of Indonesia's rapidly increasing exports of palm oil to sub-Saharan Africa will presumably undermine existing supply chains, not only industrial-scale processors but particularly also small holders and local entrepreurs. It will also tend to displace substitutes grown locally and increase the power of the foreign suppliers (especially those which have operations in the importing countries).

Some investment in deforestation in Africa for palm oil is by enterprises with no prior relevant experience (as in Republic of Congo), begging questions as to how they acquired their concessions - and their rationale for having done so. That rationale might include access to standing timber, access to land, or to present as an asset against which to raise money. However, as implied by the demise of a number of "forest development" companies which are currently or were until recently listed on the Hong Kong and Toronto stock exchanges, the valuation of the asset might, despite good intent, not be robust.

Some such investment is by major multi-national groups who have sought to distance themselves from controversy - and who (as in Nigeria) appear to focus their publicity on the transformation of existing estates rather than on forested land which may have been authorised for clearance (by them or their asociates) for new plantations.

 

Copyright globaltimber.org.uk