Dip in palm oil output in Malaysia/Indonesia to hike prices; sustainable replanting crucial
Global palm oil prices are expected to enter a bullish environment post-2021 due to a projected decrease in production in Indonesia and Malaysia — the largest global producers — from 2022 to 2025, following the current period of abundant palm oil supply, according to Rabobank’s industry report “A palm storm is brewing” launched today.
The report, which forecasted global palm oil demand/supply and price outlook, found that the expected decrease in production is a result of declining Fresh Fruit Bunches (FFB) yield of ageing palm plantations, limited available land for expansion and insufficient replanting activities in both countries.
Oscar Tjakra, Senior Analyst of Grains & Oilseeds, Food & Agribusiness, explained: “Typically, it takes four years for palm to become commercially viable, yielding close to 10 tonnes of FFB per hectare. It reaches its peak between nine and 17 years, and yields above 25 tonnes of FFB per hectare. FFB yield will decrease below 15 tonnes per hectare as palm trees become older than 25 years. Currently in Malaysia and Indonesia, we estimate that about 36% and 9% of palm are older than 25 years.”
The Netherlands-based cooperative bank also found that global palm oil consumption will grow at a CAGR of 2.8% from 2018 to 2030, with production growing only at a CAGR of 1.4%. This adds further upward pressure to palm oil prices, particularly as long-term demand from Southeast Asia’s domestic market, India and Africa outstrips production.
Oscar Tjakra said:“In the nearer term, the current low-price environment before 2022 could lead to a higher operational efficiency in plantation companies to reduce production costs, and accelerate consolidation in the industry.
“In the long run, it is important for producers to replant old plantations to boost supply in the region sustainably. Replanting programmes are also important for smallholder palm plantations, which accounted for 39% and 33%, respectively, of total palm plantations in Indonesia and Malaysia. Despite short-term challenges such as potential income loss during the first three to four years of the replanting period, sustainable replanting programmes that could prevent further deforestation and land clearing are important to boost future global palm oil production and improve productivity and welfare for smallholder farmers in the long run,” he added.
