AOF Forum 2003Thursday 14 August 2003, Grand Hyatt, Melbourne, Australia

M.R. Chandran and Joseph Tek Choon YeeMalaysian Palm Oil Association (MPOA)

Influence of Palm Oil on theInfluence of Palm Oil on theGlobal Oils and Fats EconomyGlobal Oils and Fats Economy

CONTENTSCONTENTS

1.1. Some Basics About Some Basics About the Palm Oil Industrythe Palm Oil Industry

3. Projections on 3. Projections on Supply & Demand Supply & Demand

until 2020until 2020

4. Some Signs of Times 4. Some Signs of Times Affecting the Palm Oil Affecting the Palm Oil

CompetitivenessCompetitiveness

1. Performance of the 1. Performance of the Palm Oil in Year 2002Palm Oil in Year 2002

Some basics about Some basics about the palm oil industrythe palm oil industry

Why Plant Oil Palm ? Why Plant Oil Palm ?

Low Hectarage High

•Pepper•Tea

•Banana•Coffee

•Gambir

•Coconut•Pineapple•Cocoa •Rubber

•Oil PalmHigh

Export

Low

OIL PALM CULTIVATION & THE EQUATOR BELTOIL PALM CULTIVATION & THE EQUATOR BELT

OIL PALM’S COMPARATIVE HIGH PRODUCTIVITY

Area/ mil. ha

Oil / mil. t

Soybean 78.73 28.77Rapeseed 24.69 13.69Sunflower 20.72 7.51Coconut 9.59 3.56Palm Oil 7.01 23.46

Source: Oil World

Palm oil competes with 16 other oilsPalm oil competes with 16 other oils

World production of edible oils and fats was 120 million tonnes in Year 2002.

Palm oil is second major edible oil produced after soybean but the top edible oil traded in the world.

Malaysia and Indonesia are notable excess-palm oil supply producers

Performance of Palm Oil : Performance of Palm Oil :

Year 2002Year 2002

World Oils and Fats ProductionWorld Oils and Fats ProductionYear 2002 : 120 million Year 2002 : 120 million tonnestonnes

Rapeseed

11.0%

Groundnut

4.4%

Soybean

24.7%Sunflower

6.3%

Laurics5.1%

Palm Oil

20.7%=25.0 mil. tons

Animal Fats

12.8%Others

15%

Malaysia

Nigeria

Indonesia

Others

48 %

3.1 %

35 %

9.3 %

2.6 %Thailand

Source :Oil World, 2003

2.0%Colombia

Growth of Major Oils Production

0

5,000

10,000

15,000

20,000

25,000

30,000

1997 1998 1999 2000 2001

'000T

onne

s

Soybean Palm OilRapeseed Sunflower

0

5,000

10,000

15,000

20,000

25,000

1996 1997 1998 1999 2000 2001 2002

'000T

Soybean Palm OilRapeseed Sunflower

Export Growth of Major Oils

Global Oils and Fats Trade : 41 million tonnes

Palm Oil47%

Animal Fats9%

Laurics8%

Others5%

Soybean Oil

22%

Sun/Rape Oil9%

World Palm Oil Producers : 1996-2002

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Malaysia 8,386 9,057 8,315 10,553 10,840 11,804 11,908

Indonesia 4,540 5,380 5,100 6,250 7,000 8,015 8,870

Others 3,356 3,454 3,291 3,826 3,983 4,081 4,101

1996 1997 1998 1999 2000 2001 2002

Exports of Palm Oil - Major Suppliers

Indonesia32%

Malaysia58%

Others10%

Palm Oil Export Trade : 19 million tonnes

Palm Oil Export Trade : 1975-2002

0

2

4

6

8

10

12

1975

1980

1985

1990

1995

2000

2002

0%

10%

20%

30%

40%

50%

60%

70%

80%

Malaysia Indonesia MY (%) ID (%)

Major Palm Oil Consumers

Pakistan5%

Others40%

China10%

Malaysia6%

EU-1513%

Indonesia12%

India14%

Price Trends of Some Edible Oils: 1990 - 2002

250

350

450

550

650

750

19901992

19941996

19982000

2002

US

$/t

on

ne

Palm Oil SBO SFO

KEY FACTORS OF SUPPLY AND DEMAND KEY FACTORS OF SUPPLY AND DEMAND

SUPPLY Two key countries : Malaysia and Indonesia - account for over 83% of

world palm oil production- account for nearly 90% of

world palm oil exports

DEMANDTwo key countries : India and China- account for over 33%

global population- imports 32% of world palm

oil traded

EU

China

IndiaPakistan

Indonesia6.04 MT

Malaysia11.02 MT

17%14%

18%

7%

Projections on the Projections on the Supply and Demand until Supply and Demand until

20202020

WORLD POPULATION AND FOOD PRODUCTION RELATIONSHIPS

DEMAND AND PRODUCTION RELATIONSHIPS, 1976-2020

4.34.7

5.15.5

5.96.3

6.77.1

7.4

13.414.9 15.8

17.7

12.1

24.823.4

21.920.2

0

1

2

3

4

5

6

7

8

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2000-2005

2006-2010

2011-2015

2016-2020

Pop

ulat

ion/

billi

ons

0

5

10

15

20

25

30

Per

Cap

ut C

onsu

mpt

ion/

k

Source : Revised Oil World 2020

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Production 52,65 63,09 75,66 86,81 105,0 126,4 146,7 165,6 184,7Disappearance 51,98 62,68 75,48 86,63 104,4 126,7 146,2 165,2 184,3

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2000-2005

2006-2010

2011-2015

2016-2020

Source : Revised Oil World 2020

FORECAST• Population growth :

6.3 billon to 7.4 billion by 2020

• Edible oil consumption to rise from 20 kg to 25 kg per capita by 2020

SUMMARY• Both population growth

and rising per capita usage will increase demand for oils and fats

• The Matching Game: Production to keep pace with Demand

PRODUCTION OF OILS AND FATS, 1976-2020

Production Soyaoil CPO/CPKO Rape & Sun Others Animal Fats World

1976-1980 11.2 4.2 7.2 12.8 17.2 52.71981-1985 13.5 6.6 10.7 13.7 18.6 63.11986-1990 15.3 10.4 14.8 15.3 19.8 16.21991-1995 17.9 15.1 17.6 16.4 19.8 86.81996-2000 23.1 21.1 21.8 17.8 21.3 105.12000-2005 29.6 28.4 25.2 20.1 23.3 126.52006-2010 33.6 35.3 30.2 22.3 25.4 146.72011-2015 37.2 42.0 35.0 24.3 27.2 165.72016-2020 41.1 48.6 39.7 26.3 29.1 184.8

22.2% 21.5% 14.2%26% 15.7%The Meal Factor

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

2011-2015

2016-2020

Malaysia 556 962 1,473 1,992 2,599 3,398 3,995 4,340 4,600Indonesia 178 265 470 929 1,675 2,528 3,193 3,860 4,500

Asia* 744 1,240 1,960 2,945 4,299 5,983 7,292 8,339 9,279

World 377 1,947 2,935 4,207 5,747 7,621 9,265 10,698 12,054Asia* = data on Malaysia, Indonesia, China P R, India, Japan, South Korea, Pakistan, Philippines, Turkey

Source: The Revised Oilworld 2020, p42 section yellow

+60%

Palm Oil: Mature Areas ('00 hectares) : 5-year average 1976-2020

Palm Oil: Production (‘000 tonnes)

: 5-year average 1976-2020

1976-1980

1981-1985

1986-1990

1991-1995

1996-2000

2001-2005

2006-2010

2011-2015

2016-2020

Malaysia 1,911 3,441 5,251 6,990 9,430 12,401 14,621 16,340 17,950 Indonesia 549 1,002 1,785 3,426 5,654 8,566 11,346 14,326 17,150

Asia* 2,485 4,478 7,090 10,483 15,151 21,069 26,163 30,947 35,488

World 3,688 5,880 9,220 13,344 18,717 25,240 31,427 37,405 43,361

+72%

Some Signs of Times Some Signs of Times Affecting Affecting

Palm Oil CompetitivenessPalm Oil Competitiveness

Emerging ‘trade-environment’ concepts in WTO

Concept• If a country has lower

environmental standards in a sector, the environmental cost of that country’s product is not internalised,

• ….. the price of the product is ‘artificially’ lower or being unfairly ‘subsidised’ by its lower environmental standards

ResultImporting countries can have the right to impose trade penalties such as levying countervailing duties

Processes and production methods (PPMs)

Internalisation environmental

costs

Eco-dumping

WTO

BUT, NONBUT, NON--LEVEL PLAYING FIELD : US FARM BILL 1996LEVEL PLAYING FIELD : US FARM BILL 1996USDA subsidies for farms in the United States totalled USD 71 billion from 1996 through 2000

33% EU33% EU

21% US21% US

NONNON--LEVEL PLAYING FIELD IN AGRICULTURELEVEL PLAYING FIELD IN AGRICULTURE

USD71billion = >20 times of Malaysian Total Palm Oil Export Value for 1996-2000

Long Run Trends in Real (Inflation Adjusted) Annual Rotterdam Crude Palm Oil Prices, 1950 to 2002

0200400600800

1,0001,2001,4001,6001,8002,000

1950 1955 19601965 1970 1975 1980 1985 19901995 2002

Real

(200

2) P

rice

US$/

tonn

e

Palm Oil Real Price Long Run Trend

0200400600800

1,0001,2001,4001,6001,8002,000

1950 1955 19601965 1970 1975 1980 1985 19901995 2002

Real

(200

2) P

rice

US$/

tonn

e

Palm Oil Real Price Long Run Trend

Source: LMC at MDEX, 2003

Malaysian Palm Oil Price and Productivity Trends ( 1975 to 2002 )

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

YR 1975

YR 1976

YR 1977

YR 1978

YR 1979

YR 1980

YR 1981

YR 1982

YR 1983

YR 1984

YR 1985

YR 1986

YR 1987

YR 1988

YR 1989

YR 1990

YR 1991

YR 1992

YR 1993

YR 1994

YR 1995

YR 1996

YR 1997

YR 1998

YR 1999

YR 2000

YR 2001

YR 2002

Pric

e (R

M/to

nne

CPO)

0

5

10

15

20

25

Yiel

d(to

n/ha

/yr)

Price FFB Total Palm Product

Price

FFB Yield

Total Palm Product

EL NINO

Replant of Duras

Weevil Labour

ElNino

Malaysian Palm Oil Prices & Productivity Trends ( 1975 Malaysian Palm Oil Prices & Productivity Trends ( 1975 –– 2002 )2002 )

Global Adoption of Transgenic Crops, 1996Global Adoption of Transgenic Crops, 1996--20022002

Global Adoption of Transgenic Crops, 1996Global Adoption of Transgenic Crops, 1996--20022002

Malaysian Case Study : Availability of Land at the Crossroad

• 3.7 million hectares planted• Encroachment in prime areas• Further expansion constraints

– Shortage of prime agri. land– Conversion from rubber– Marginal areas eg. deep peat

• No longer the luxury based on economy of scale

• Land use: What is the limit of oil palm expansion in Malaysia ?

• Estimates : Maximum at ~ 4.0 to 4.2 million hectares

SarawakSarawak

SabahSabah

Rapid Soybean Expansion in Pantanal Region, South America( also in Mato Grosso in Brazil )

PantanalEcoregion13 million hectares

Malaysian CaseMalaysian Case--Study : Availability of Workers

• History of a ‘love-hate’ relationship• Frequent abrupt and inconsistent

policies• Result : Periodic labour shortage, crop

loss, illegal workers• Cognisance of the threats to social

structure and security• Other options :

– Change work methods– Mechanisation imperatives

Study : Availability of Workers

Availability of foreign workers will remain a major factor …Availability of foreign workers will remain a major factor …

THE DEBATE : ECOTHE DEBATE : ECO--REGIONS vs. PALM OIL BUSINESSREGIONS vs. PALM OIL BUSINESS

KEY THREATSKEY THREATS

-- Forest ConversionForest Conversion

-- Illegal Logging and Forest CrimeIllegal Logging and Forest Crime

-- Forest FireForest Fire

-- Climate ChangeClimate Change

SUSTAINABILITYCONFLICT ?

BIODIVERSITY AREAS ARE IN DEVELOPING COUNTRIESBIODIVERSITY AREAS ARE IN DEVELOPING COUNTRIES

SUMMARYTHE FUTURE OF PALM OIL IN GLOBAL OILS AND FATS

Opportunities

Both population growth and rising per capita consumption will increase demand for oils and fats; which will include

market share for palm oil and all other oils

Challenges Ahead

- competitiveness of palm oil vis-à-vis other vegetable oil crops i.e. GMO technology, soy expansion in South America, devaluation of currency, farm subsidies, WTO etc.

- long term declining commodity prices- scarcity of labour and land for oil palm expansion ( in

Malaysia )- issue on yield productivity increase- debate on sustainability

AOF Forum 2003AOF Forum 2003

Thursday 14 August 2003, Grand Hyatt, Melbourne, AustraliaThursday 14 August 2003, Grand Hyatt, Melbourne, Australia

M. R M. R Chandran Chandran and Joseph and Joseph Tek Choon Tek Choon YeeYee

Malaysian Palm Oil Association (MPOA)Malaysian Palm Oil Association (MPOA)