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  March 31st, 2021 | Written by

Labour Shortages and the EU Ban: New Challenges for the Palm Oil Market

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  • In 2019, global palm oil imports rose markedly to 50M tonnes, picking up by 7.2% on the previous year.
  • Malaysia, the world's second-largest palm oil producer, faces severe labor shortages.

IndexBox has just published a new report: ‘World – Palm Oil – Market Analysis, Forecast, Size, Trends, and Insights.’ Here is a summary of the report’s key findings.

While Indonesia, planning to expand production, fights for the EU’s recognition of palm oil as a biofuel, Malaysia is faced with an acute shortage of labor due to the outflow of guest workers after the pandemic. Despite the challenges in these two countries, which produce 85% of the world’s palm oil, the global demand remains high. As the economies of the main importers, China and India, recover, the previous growth in demand is expected to continue.

Key Trends and Insights

In March 2021, the futures price for crude palm oil reached its highest level of 954 US$/MT in 13 years, according to the Malaysian Palm Oil Council, March 23. This is due to limited supply from manufactures as a result of the COVID-19 pandemic.

Malaysia, the world’s second-largest palm oil producer, faces severe labor shortages. Since the beginning of the pandemic, the country has stopped hiring foreign workers, and the former migrants have returned to their homeland. Malaysian suppliers have asked the government to fill a 50,000 labor shortage, which could lead to a 20% drop in palm oil production. They also ask to cut product taxes and invest additional funds in the industry.

Over the next two years, the rising demand from the world’s two largest importers, India and China, is expected to become the main driver for the palm oil market growth. These economies recover, and rapid urbanization contributes to an increase in the need for food products.

Falling production and rising prices for sunflower oil, as a result of the sunflower harvest failure last year, could further fuel demand for palm oil.

Increasing tariffs for container transportation and a planned reduction of palm oil consumption in Europe could hamper market growth. The Renewable Energy Directive (RED) II and other food safety regulations could decrease palm oil imports to the European Union and phases out the use of palm oil as biodiesel. In 2017, the European Parliament adopted a resolution that bans palm oil for biofuel production due to the large-scale deforestation and labor rights violations in Indonesia and Malaysia. Also, in 2019, the European Union imposed an import duty on Indonesian biodiesel.

Indonesia Dominates the Market and Continues to Expand Production

Global palm oil production rose remarkably to 76M tonnes in 2019, picking up 6.4% against 2018. The total output volume increased at an average annual rate of +5.4% from 2012 to 2019.

Indonesia (44M tonnes) is the world’s largest producer of palm oil, comprising approx. 57% of the global volume. Moreover, Indonesia’s palm oil production exceeded the figures recorded by the second-largest producer, Malaysia (20M tonnes), twofold. The third position in this ranking was occupied by Thailand (3M tonnes), with a 4% share (IndexBox estimates).

From 2012 to 2019, the average annual growth rate in Indonesia totaled +7.7%. The remaining producing countries recorded the following production growth rates: Malaysia (+0.8% per year) and Thailand (+7.9% per year).

Driven by increasing demand for palm oil worldwide, the market is expected to continue an upward consumption trend over the next decade. Market performance is forecast to decelerate, expanding with an anticipated CAGR of +3.1% for the period from 2019 to 2030, projected to bring the market volume to 106M tonnes by the end of 2030.

India and China to Remain as the Top Importers

In 2019, global palm oil imports rose markedly to 50M tonnes, picking up by 7.2% on the previous year. The total import volume increased at an average annual rate of +2.8% over the period from 2012 to 2019.

In value terms, palm oil imports amounted to $30.5B (IndexBox estimates).

In 2019, India (9.7M tonnes), distantly followed by China (5.5M tonnes), Pakistan (3.2M tonnes), the Netherlands (2.8M tonnes), and Spain (2.7M tonnes) represented the key importers of palm oil, together creating 47% of total imports. The U.S. (1.6M tonnes), Italy (1.5M tonnes), Bangladesh (1.5M tonnes), Egypt (1.1M tonnes), Malaysia (1.1M tonnes), Russia (1.1M tonnes), Myanmar (1M tonnes), and Kenya (0.9M tonnes) followed a long way behind the leaders.

From 2012 to 2019, the biggest increases were in Spain, while purchases for the other global leaders experienced more modest paces of growth.

In value terms, the largest palm oil-importing markets worldwide were India ($5.4B), China ($3.4B), and Pakistan ($1.8B), together comprising 35% of global imports.

Source: IndexBox AI Platform