What are the Driving Factors of the Palm Oil Market?

Palm oil is a plant-based oil made from the pulp of oil palm fruits. Crude palm oil, unlike its yellowish-black cousin, takes on a reddish hue as a result of the fruit from which it is derived. The fruit of the oil palm tree does not go to waste, and the kernel is used to make palm kernel oil.

Palm oil, also known as vegetable lard, has a wide range of applications beyond cooking, thereby garnering considerable attention and establishment of the palm oil market.

A large amount of land has been dedicated to oil palm plantations for crude palm oil cultivation, especially in Southeast Asian countries such as Indonesia and Malaysia which are the largest producers of palm oil in the world.

Given the world’s rising population, palm oil production has only resulted in increased demand. Asia’s major importers of palm oil are China and India, which together account for a quarter of global consumption.

There are also countries where population growth is expected to continue, which is a key source of demand growth. Apart from being more efficient than other vegetable oils in terms of production per hectare, this high-yield crop is also the most developed edible oil.

It can be used in a variety of items besides cooking and food, such as cosmetics and toilet paper. Besides, it also accounts for almost half of all packaged goods sold in supermarkets, including pizza, doughnuts, and sweets, as well as deodorant, shampoo, toothpaste, and lipstick.

In several parts of the world, it’s also used in animal feed and as a biofuel. Owing to its vast use, the resultant higher demand is one of the key factors in the palm oil production market. Additionally, palm oil is a high-yielding crop. It produces a much higher yield at a lower cost than other vegetable oils.

On the contrary, to produce the same amount of alternative oils such as soybean or coconut oil, you would need anywhere between four to ten times more ground, which would simply move the issues to other areas of the world and endanger other ecosystems and wildlife.

Hence, palm oil production and demand are increasingly growing around the world and now plantations can now be found in Asia, Africa, and Latin America. The low cost of production of a high-yielding crop makes it a favorable choice.

Thereby, letting corporations invest heavily in palm oil markets. Furthermore, palm oil is also an important crop for the GDPs of emerging economies and millions of smallholder farmers depend on it for a living.

Having said that, over the past few years there have been concerns regarding the impact of palm oil production on biodiversity. However, there are now certification systems in place, such as the Roundtable on Sustainable Palm Oil, that require producers to avoid destroying primary forests, protect rivers, avoid fires, and reduce pollution.

As public awareness of the issue of deforestation has grown over the last decade, there has been a pattern of individual corporate commitments to ‘no deforestation,’ and the palm oil industry is one of them.

Several factors may contribute to the growth of palm oil production and thus the expansion of the palm oil market in the coming years. On the demand side, the number of people who want to consume palm oil is ever increasing.

Higher yield per hectare coupled with low cost of production along with compliance of stakeholders with environmental regulation and certification norms only indicates the way upwards from here for palm oil markets globally.

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