Palm Oil in Southeast Asia - Essay Example

Palm Oil in Southeast Asia Name Institution Course Date Palm Oil in Southeast Asia Palm oil is one of the most renowned oil produced and consumed worldwide. It is considered cheap, very efficient in its production as well as its high stability, therefore has a wide range of application (MPOC, 2008). It can be used in food, cosmetics as well as hygiene products and moreover, it can be utilized as a source of biodiesel which is an alternative to fuel. Most of these palm oil is grown and produced in Asia, Africa and South America. Asia is the largest producer of this commodity. The global production of palm oil is largely taken by Indonesia and Malaysia (MPOC, 2008). They accredit for more than 80 per cent of the estimated total worldwide palm oil production. The estimated production of palm oil in the year 2014 was contributed by Indonesia with almost 33 million tons, followed by Malaysia with 19.8 million tons. This shows that Asia is the largest producer of palm oil worldwide. In addition, palm oil products are manufactured using refining processes. They are used in the production of vegetable oil as its main product. Other than vegetable oil, it is also used in the production of hygiene products such as soaps, washing powder and other products (Murphy, 2007). This essay will discuss the history of palm oil in Southeast Asia, how it came into being as well as its price. Furthermore, it will highlight the various features that make it so valuable and the buyers and sellers of the commodity. Finally, it will also highlight the various issues that reflect its value. A mature palm plantation gives rise to fruits which can be completely ready for harvest within 4 to 6 years since the day they were planted (Cornet, 2001). This occurs as expected if it is well fertilized. The life expectancy of an oil palm tree is on average 28 to 30 years, at which they have grown to a height of about 40 feet with which it becomes difficult to harvest the fruits using extension poles. The fruits obtained from the oil palm trees are therefore used in the extraction of palm oil. The oil palm fruit is composed of an outer layer which is a pulp containing palm oil, which is within a fibrous matrix (Cornet, 2001). In addition, it has a central nut containing the shell and the kernel. The kernel has oil that is similar in appearance to coconut oil. The oil palm fruits are taken into a processing plant where the palm oil is extracted from the fruits (Cornet, 2001). For instance, cooking oil that is processed from palm oil as it contains glycerides which are the fatty acids that makes it either viscous when exposed to tropical temperatures or solid fat when exposed to temperate weather conditions (Cornet, 2001). Moreover, if the palm oil is grown under ideal climatic conditions as well as proper management, they demonstrate high yielding capabilities, thus producing up to 5 tons of palm oil per hectare annually. This poses as a challenge to any other source of edible oil. Additionally, the cost of palm oil has been fluctuating every year. From the year 2015, the price of palm oil in terms of USD per metric ton had reduced from the month of January at 688 USD/mt to about 659 USD/mt in the month of May (Talib and Darawi, 2002). It then rose to 671 USD/mt the following month. Since then, the price of palm oil per metric ton has fallen to about 566 USD/mt in January of this year. Furthermore, the price then continuously rose to about 723 USD/mt as recorded in the month of April of this year (Talib and Darawi, 2002). This statistic demonstrates how unstable to the price of palm oil is, which is affected by the variation of different factors within its markets. Palm oil accounts for almost 35% of the total world’s oil market and this since it is valuable. Therefore, palm oil is considered a very valuable source of vegetable oil due to its efficiency, versatility, supports economies and provides a source of livelihood (Wahid, Simeh and Nordin, 2007). Thus, palm oil is considered to be efficient because it has the capability to be harvested all-round the year. Oil palm trees gives rise to an average of about 10 tons of the fruit per hectare, which is greater than soya and sunflower crop (Talib and Darawi, 2002). In addition, the oil palm trees needs 10 times less land when compared to various other oil producing crops such as soya and sunflower. Additionally, palm oil is said to be very versatile. This is because its demand continually grows since it is the most versatile crop that produces vegetable oil. Furthermore, it is considered versatile since it can undergo various processes and also can be blended to produce a vast variety of products (Talib and Darawi, 2002). In addition, these products have dissimilar melting points consistencies as well as their characteristics. The commodity is also valuable for it feeds a global population. Since the commodity is very efficient, it is very crucial for it feeds the continuous growing population. Also, many people prefer a cheaper form of vegetable oil therefore palm oil is the most appropriate form of vegetable oil available for the ever growing population (Wahid, Simeh and Nordin, 2007). Moreover, palm oil is considered valuable since it creates a source of livelihood for numerous people. This is so because many people depend on palm oil farming as a source of employment which helps facilitate their livelihood (Wahid, Simeh and Nordin, 2007). This is also because most of the small holders of oil palm are comprised of the less fortunate. Therefore, the funds which they get from oil palm farming is important to feed and take care of their families. Finally, palm oil is valuable since it supports economies, for instance, economies within Southeast Asia have received great contributions from the growing of palm oil. Farming as well as production of palm oil has shaped the backbone of Southeast Asian nations (Murphy, 2007). For instance, Indonesia produces about 11 per cent of the total sales of palm oil worldwide with which one-thirds of the production is attributed to its local palm oil farmers. The major consumers of palm oil are China, the European Union, Pakistan and India. They desire palm oil depending on their various needs. For instance, China, Pakistan and India desire palm oil as a source of vegetable cooking oil (Murphy, 2007). It is considered an affordable source of vegetable oil as compared to other oils such as soybeans’ oil. Therefore, most of the population can afford the oil, creating a demand for palm oil. On the other hand, the European Union (EU) desires palm oil as a source of bio-fuels (Pleanjai, Gheewala and Garivait, 2007). This is as a result of sustainability goal which emphasize on the utilization of alternative source of fuels. Therefore, palm oil is therefore needed in the EU as an alternative to fuel. Malaysia is the major exporter of palm oil all over the world despite being the second producer of palm oil after Indonesia (Wahid, Simeh and Nordin, 2007). It exports about 60 per cent of palm oil to China, the European Union, and the United States as well as to Pakistan and India. Most of its exports are processed into cooking oil, specialty fats and margarine after being exported to these nations. Therefore, the world’s major seller of palm oil in Asia includes Malaysia and Indonesia, whereas in Europe is Rotterdam (Murphy, 2007). BURSA Malaysia is considered the biggest futures market for crude palm oil. Also, the future cost of CPO sold at BURSA Malaysia functions as an indicator for the RBD palm oil sold all over the world. On the other hand, the major importers of palm oil include China, the European Union, India as well as Pakistan (Murphy, 2007). They accredit for about 54.5 per cent of the total global oil imports. Particularly, India, China as well as Pakistan, chiefly import palm oil for cooking, whereas the European Union imports its palm oil primarily as a source of the production of bio-fuels (Abdullah, Abas and Ayatollah, 2007). The most dominant country that import palm oil is India accounting for about 19 per cent. It is then followed by China importing about 16 percent of the total global palm oil imports. Furthermore, Pakistan imports about 5.66 per cent of the global palm oil imports. In the entire world, the most used vegetable oil comes from palm oil and thus it is considered the most well-known crop in terms of production. Hence, the growth of palm oil production can be accredited to demand demonstrated by the local consumers as well as its affordable price (Abdullah, Abas and Ayatollah, 2007). Therefore, the dependence configuration of extreme actualization of the rate of growth between the cost of palm oil as well as the factors that affect their costs which are inclusive of soya beans and crude oil prices. Hence, the factors that are found to affect the cost of palm oil are very unique are they include the rise in population density, price of crude oil and availability of substitutes (Hameed and Arshad, 2009). These factors have resulted in a variation in the prices of palm oil. A rise in these factors might result to ambiguity that makes the process of decision making to swing by the extreme side as hoarding of the commodity (Abdullah, Abas and Ayatollah, 2007). Therefore, the increase in population leads to a higher demand for the commodity for their daily living. This leads to an increased demand of the affordable vegetable oil resulting in the fluctuation of the prices of palm oil in order to cope with the continued demand. Furthermore, the price of crude oil is another factor that affects the price of palm oil (Hameed and Arshad, 2009). This is because the current rise in the price of crude oil, the demand for biodiesel has skyrocketed due to various environmental concerns. Therefore, biodiesel has become a significant alternative for fuel and behaves as the driving-force for these industries that greatly relies on both logistics and transportations in order to deliver their goods (Hameed and Arshad, 2009). This demand for alternative fuels leads to a significant fluctuation of the prices of palm oil. In addition, the availability of substitutes such as soybeans oil has significantly affected the price of palm oil. This is because soybean oil is similar to palm oil since it is an oil commodity, therefore has more or less similar use within the food industry (Abdullah, Abas and Ayatollah, 2007). Competition arises between these two oils thus affecting the price of palm oil in general. To sum up, palm oil is considered one of the world’s renowned vegetable oil, which is highly consumed especially within China, India, Pakistan as well as the European Union. The commodity is dominant in Southeast Asian nations of Indonesia and Malaysia. They produce more than half the amount palm oil produced worldwide, making them the largest exporters of palm oil globally. On the other hand, the largest consumers of palm oil include China, India, Pakistan, European Union to name a few. They import these palm oil either as a source of vegetable oil or as a source of bio-fuel particularly in the European Union. Furthermore, the value of palm oil is affected by factors such as the significant increase in population density, the price of crude oil and the availability of substitutes such as soybeans oil. References Abdullah, R., Abas, R & Ayatollah, K 2007, ‘Impact of Palm Oil-based Biodiesel Demand on Palm Oil Price’, Oil Palm Industry Economic Journal, vol. 7, no. 2, pp. 19-27. Cornet, D 2001, Oil Palm – Elaesis guineensis Jacq. In R.H. Raemaekers, ed.: Crop Production in Tropical Africa, Directorate General for International Cooperation (DGIC), Brussels, pp. 769-797 Hameed, A. A & Arshad, F 2009, ‘The Impact of Petroleum Prices on Vegetable Oils Prices: Evidence from Co-integration Tests’, Oil Palm Industry Economic Journal, vol. 9, no. 2, p. 31-40. MPOC 2008, Oil Palm: Tree of Life, Malaysian palm oil council, Kuala Lumpur. Murphy, D 2007, ‘Future Prospects for Oil Palm in the 21st Century: Biological and Related Challenges’, European Journal Lipid Science and Technology, vol. 109, no. 4, pp. 296-306. Pleanjai, S., Gheewala, S. H & Garivait, S 2007, ‘Environment evaluation of biodiesel production from palm oil in a life cycle perspective’, Asian Journal of energy environment, vol. 8, no. 1&2, pp. 15-32. Talib, B. A & Darawi, Z 2002, ‘An Economic Analysis of the Malaysian Palm Oil Market’, Oil Palm Industry Economic Journal, vol. 2, no. 1, pp. 19-27. Wahid, M. B., Simeh, M. A & Nordin, J 2007, ‘Recent Development in the World Palm Oil Prices: An Overview’, Oil Palm Industry Economic Journal, vol. 7, no. 2, pp. 1-12. Read More