Palm oil is the main vegetable oil consumed in the world today, accounting for 33% of all oils consumed globally, closely followed by soya oil with 31%. In the previous decade world palm oil consumption has more than doubled from around 16.7Mt in 1997/98 to over 40Mt in 2007/08 (USDA). This figure is estimated to surpass 70Mt by 2020. Of the total 154Mt oils and fats production in 2007, palm oil accounted for around 25%, soya oil 24% and rape oil 16%.
Characteristics of Palm Oil
Palm oil is vegetable oil obtained from the fruit of the palm oil tree while palm kernel oil is obtained from the crushed kernel. The majority of palm oil is grown in large plantations in Indonesia, Malaysia and other tropical countries that are located close to the equator.
Oil palms have an economic lifecycle of 20 to 25 years with an average annual oil yield of 3.5-5 t / ha making it the highest oil bearing crop in the world, surpassing average rapeseed oil yields by 2.5 times and soya oil yields by as much as 7 times. One hectare of palm oil may yield nearly 6,000 litres of crude oil whereas soya and corn generate approximately 446 and 172 litres per hectare, respectively.
Palm oil is mainly used in food stocks with around 90% going into food applications and the remaining 10% going into non-food applications. A recent publication estimated that palm oil can be found in 10% of products sold in EU supermarkets ranging from biscuits and chocolate bars to cosmetics and toiletries. Around 3% of palm oil that is used in non-food applications goes into biofuel production with this figure likely to increase rapidly over the next few years.
Main Producing Countries
Malaysia and Indonesia are the two largest producers of palm oil accounting for 35.7Mt of world production, or 87% in 2007/08. The remaining production of palm oil comes from countries including Thailand, which accounts for 2.5% of world output, and Columbia and Nigeria contributing 2% each.
Indonesia has nearly quadrupled output in the past decade from 5Mt in 1997/98 to around 18.3Mt in 2007/08 making it the largest producer of palm oil in the world, accounting for 45% of total world output. This increase in production will be grown on an area of 5Mha, an increase on the previous year by around 0.5Mha.
Malaysia is forecast to produce 17.4Mt of palm oil in 2007/08, an increase of 12% on 2006/07. This will be produced on a total area of around 3.9Mha, up slightly from 3.79Mha a year ago.
Currently, the 4Mha of planted oil palm in Malaysia, which represents approximately 2% of the total land used for oilseed production in the world, can produce 11% of the global vegetable oils. When combined with Indonesia, these two countries produce nearly a quarter of the world's total demand of vegetable oils, from approximately 5% of the worlds land used for oilseed production.
Main Consumers
China, India and the European Union are the largest consumers of palm oil in the world with total domestic consumption in 2007/08 forecast to reach 14Mt, equivalent to nearly 50% of total world consumption. Both China and India have experienced exceptional population and GDP growth over the previous decade resulting in an increase in their demand for palm oil. China is forecast to consume 5.8Mt (19%) of world palm oil in 2007/08, making it the largest consumer in the world. This is a rise of 0.66Mt from 2006/07 and a staggering increase of 4.5Mt in the previous decade. India is the second largest consumer of palm oil, consuming an estimated 4.2Mt (14%) of world palm oil in 2006/07. China and India account for a combined 33% of total world output with the majority of these imports coming from Malaysia and Indonesia. The EU is forecast to consume 3.86Mt of palm oil in 2007/08, which is some 10% of global demand.
Trade
The main palm oil importing countries are China, India and the EU. Of the total world palm oil trade of 30Mt in 2007/08, it is estimated that 91% will be exported from Malaysia and Indonesia. They are forecast to export a combined 27.1Mt this year with around 40% destined for China and India.
Emerging Biodiesel Sector
The palm oil based biodiesel industry has been growing rapidly over the previous few years due to the competitiveness of palm oil versus other vegetable oils. A number of countries including Indonesia and Malaysia have started to explore palm oil based biodiesel production. The biggest palm oil based biodiesel producer is Indonesia, which has seen output increase from 0.18Mt in 2006 to a forecast 1.7Mt this year.
However, with palm oil prices rising to record highs recently and a lack of government incentives, biodiesel producers have begun to cut back on palm oil use in biodiesel blends. Malaysia has shelved plans to start selling a blend of 5% biodiesel and 95% petroleum diesel and the majority of producers in Indonesia are running at 10% capacity or have ceased production completely. Recently, there has also been a lot of negative publicity surrounding the use of palm oil in the production of biodiesel, which is related to the increased destruction of rainforest.
Competitiveness of Palm Oil
Looking back over the past few seasons, palm oil has been consistently more price competitive than other main vegetable oils. For April 2008, the average fob palm oil price was reported at $1,247/t, which was more than $220 below the fob rape oil price and $116 /t below the fob soya oil. Palm oil's price competitiveness versus other oils has contributed to the large rise in palm oil usage over the past years, particularly at times of very high prices.
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