Prospects for world supply & demand of vegetable
oils - global challenges and implications for the
oil palm agro-industry
Peter Thoenes
Trade and Markets Division
Food and Agriculture Organization of the U.N.
Oilcrops market outlook and oil palm challenges
Overview
1.
2.
3.
Medium-term outlook for the global oilcrop market
Global food demand, food security, resource issues and
climate change
The case of oil palm
4.
Emerging recommendations
2
Oilcrops market outlook and oil palm challenges
1. Medium-term outlook for the global oilcrop market
a)
b)
c)
d)
e)
•
•
•
•
Price projections
Supply projections
Demand projections (incl. biofuel)
Trade Projections
Sources of uncertainty
model-based projections generated by OECD-FAO
entire agricultural sector, including biofuel
only four main oilcrops & products covered
10-year horizon 2009-2018

focus on vegoils ... palm oil
3
overall:
- above historical averages
 continuing demand expansion, food and non-food
 below average s-t-u ratios for oilseeds and products
in nominal terms:
- below 2007/08 peaks
- exceeding 1997-2006 average
oilseeds
+45%
vegoils
+70%
meals
+30%
- annual growth rates: 1-2%
- likelihood of continued price volatility
World prices - in nominal terms
2.5
index 1997 = 1
Oilcrops market outlook and oil palm challenges
a) Price projections for oilseeds, oils, meals
2.0
1.5
Oilseed meals
Oilseeds
1.0
Vegetable Oils
0.5
1997 2000 2003 2006 2009 2012 2015 2018
Source: FAO/OECD
4
(nominal)
palm oil remains the lowest-priced oil
2200
Soybean Oil
USD per tonne
1800
Rapeseed Oil
1400
Sunflower Oil
1000
Palm Kernel
Oil
Groundnut oil
600
Palm oil
200
1998/99
in real terms:
- stable (as opposed to historical
downward trend!)
- above 1997-2006 average:
vegoils +30% (outstanding!)
2007/08
2017/18
Source: FAPRI
World prices - in real terms
2.0
index 1997 = 1
Oilcrops market outlook and oil palm challenges
World prices for individual vegetable oils
1.5
Oilseed meals
1.0
Oilseeds
Vegetable Oils
0.5
1997 2000 2003 2006 2009 2012 2015 2018
Source: FAO/OECD
5
moderate rise to USD 70 in 2018
(60% above 1997-2006 average)
Brent crude oil price
120
100
USD per barrel
Oilcrops market outlook and oil palm challenges
crude oil price assumption:
80
60
40
20
0
2000 2003 2006 2009 2012 2015 2018
Source: USEIA, OECD
b) Supply projections (oilseeds, vegoils)
• further increase in global output (2018 over 2006-08 avg.):
– oilseeds +32%, vegoils +44%
– exceeding other crop sectors
– concentrated in developing countries
• but general reduction in annual growth rates (compared to past 10 years)
 limited yield improvements
 slower area expansion, esp. in developing (e.g. Lat.America)
6
Oilcrops market outlook and oil palm challenges
•
•
EU vegoil production continues to expand: +26% (from domestic and imported seed)
palm oil:
– fastest expanding vegoil (ahead of soy oil)
– driven by food and industrial demand
– main factor in Indonesia: area; in Malaysia: yield
– share in total vegoil output: grows to 30%
c) Demand projections for vegoils
•
•
•
•
•
•
further expansion: +44%
commodity group with fastest growing consumption: 3% p.a.
but growth slowdown
 reduced population growth + saturation effects
 firm prices
developing countries contribute most (esp. in Asia)
 population growth, income growth, low per caput consumption level
largest expansion: palm oil, followed by soyoil
EU and China account for 28% and 16% of global expansion
7
•
•
commercial viability not secured
global BD production to more than double: +127% (2009-2018)
Biodiesel-share in total diesel consumption
 expansion in transport fuel
(in energy equivalent)
10%
 rising share of diesel in transp. fuel
8%
6%
2018
2%
nd
ail
a
Th
Ph
ili
M
al
pp
i
ne
s
ay
s ia
az
il
Br
lia
Ar
ge
nt
in
a
Au
st
ra
Ca
n
few important players:
EU
(2
7)
ad
a
US
A
0%
Source: FAO/OECD
BD production - current and projected
20
Growth in biodiesel production
(2006-08 over 2018)
16
800
12
2006-2008
2018
8
4
600
percent
400
200
0
rs
pr
od
ai
n
m
.
av
g
of
Source: FAO/OECD
Source: FAO/OECD
uc
e
US
A
nd
Th
ai
la
a
a
ay
si
M
al
ne
si
)
(2
7
In
do
EU
m
bi
a
ad
a
ol
o
C
il
ra
z
Ca
n
B
rg
e
nt
in
a
0
A
•
shares of BD in total transport fuel
to remain modest
2009
4%
Ar
ge
nt
in
a
Br
az
il
Ca
na
da
Co
lo
m
bi
a
EU
(2
7)
In
d
In
do ia
ne
Ma sia
lay
sia
Th
ail
an
d
US
A
•
billion liters
Oilcrops market outlook and oil palm challenges
Biodiesel demand
BD production:
• demand strongly driven by national utilization mandates plus subsidies
8
•
global vegoil use for BD to almost double:
– from 16 (2009) to 31 mmt (2018)
•
weight of BD demand in total vegoil consumption:
– to range (in 2018) between 18 and 95 %
– main producers’ avg. rises from 11% in 2006-08 to 20 % in 2018
Use of vegetable oil for biodiesel
- in percent of total veg. oil use 100%
80%
60%
Average
2006-2008
40%
2018
20%
.
US
A
Ca
na
da
Co
lo
m
bi
a
EU
(2
7)
In
do
ne
si a
M
ala
ys
ia
az
il
Br
pr
od
uc
er
s
Ar
ge
nt
in
a
0%
av
go
fm
ai
n
Oilcrops market outlook and oil palm challenges
vegoils as feedstock
Source: FAO/OECD
9
•
•
•
slow development of emerging BD industry
BD industry to absorb less than 4% of palm oil output
 low national consumption targets
 increasing palm oil price (relative to BD and crude oil prices)
 poor export prospects (increased competition, sustainability requirements)
weight of palm oil among BD feedstock to remain about unchanged
– ca. 11% of total vegoil BD-use
– ca. 9% of all BD produced
Biodiesel Price
( Germany, net of BD tariff)
BD price:
•
•
150
to grow steadily
remaining well above fossil diesel prices
USD per hectolitre
Oilcrops market outlook and oil palm challenges
Malaysia & Indonesia (palm oil)
130
110
90
70
2005
2009
2013
2017
Source: FAO/OECD
10
expected to double (6.7 mill litres in 2018)
5 main players: EU, Argentina, Malaysia, Indonesia, USA
share of BD trade in total BD production to fall slightly
(import demand increase less rapidly than production)
 domestic policies, trade barriers, lack of harmonized biofuel specifications
Biodiesel net trade - current and projected
5.0
3.0
1.0
-3.0
-5.0
2006-2008
2018
USA
Malaysia
Indonesia
-1.0
EU27
Argentina
•
•
•
billion liters
Oilcrops market outlook and oil palm challenges
BD trade
Source: FAO/OECD
11
Oilcrops market outlook and oil palm challenges
d) Trade projections (major vegoils)
• 50% expansion
– production in main comsumption regions not keeping up with demand
– fastest growing commodity
– BF production triggers additional import demand
• lead of developing countries
• continued expansion in South-South trade
• palm oil: remains most traded vegoil
Export market:
• 3 countries to supply 75%: Indonesia, Malaysia, Argentina
• Indonesia & Malaysia (palm oil)
– 4-5% annual growth
– 80-90% of domestic production exported
• Argentina & Brazil (soy oil)
– moderate growth
• other sources of growth: Canada, USA, CIS nations
12
Oilcrops market outlook and oil palm challenges
Import market:
• developing countries to lead global imports (esp. China, India, other Asia)
• but EU also contributes to expansion




EU imports to more than double (BD production)
esp. palm oil imports for food industry
to become biggest importer ahead of China
>50% of domestic vegoil consumption to stem from imports
• strong import dependence in several countries
 global market instability
13
Oilcrops market outlook and oil palm challenges
e) Sources of uncertainty
•
•
•
•
resumption of global economic growth: 2010 or later?
policy responses to global price volatility
high market concentration increases market instability
continued consumer concerns about environmental risks as well as GM
products
• exposure to developments in the energy market:
higher crude oil prices
lower crop production (via rising production costs)
reduce food consumption (via higher crop prices)
increase BD production
• land reallocations triggered by food/fuel competition
14
Oilcrops market outlook and oil palm challenges
2. Global food demand, food security, resource issues and
climate change
a) Food security
b) Global food demand, resource issues, climate change
15
Oilcrops market outlook and oil palm challenges
a) Food security
• good medium- and longer-term market prospects
– stable/slightly rising commodity prices
– demand growth matched by production increase
– developing nations participating in expansion of production, consumption and
trade
• deterioration in world hunger and food security
– rise in number of people living below the hunger threshold
– rising food prices
contributing factors:
–
–
–
–
–
–
–
–
temporary supply and demand imbalances
increased market instability
national interventions in markets
direct linkage energy & food prices
food/fuel competition
falling international investment flows
budgetary pressure on development aid
global economic slowdown
16
Oilcrops market outlook and oil palm challenges
b) Global food demand, resource issues, climate change
Long-term food requirements:
•
further rise in avg. per caput consumption (in kcal/person/day)
•
oilcrop products remain major contributors to future growth in developing country
food consumption
Sources of production growth:
─ 80% from higher land productivity: yield & cropping intensity
─ 20% from area expansion
Productivity
•
developing country yield levels continue growing, but growth rates may fall!
17
Oilcrops market outlook and oil palm challenges
Land availability:
•
significant amount of land potentially suitable for soybeans and oil palm
18
Oilcrops market outlook and oil palm challenges
•
actual land availability is limited
 competition among food crops, pasture uses, wood uses and other, new uses
(energy crops, crops with low carbon footprint)
 growing urban, industrial, infrastructural uses
 only part of the land has high or at least good yield potential
 considerable part of land consists of forest - conversion carries significant
social/environmental costs
Climate change:
•
•
•
•
no consensus on ultimate net global impact on agric. production
global warming and changing rainfall patterns potentially
 beneficial in high latitude regions
 damaging in low latitude tropical areas
uncertainty regarding the effects of higher atmospheric CO2 concentration (carbon
fertilization)
consensus:
– food security to be affected
– considerable scope to improve resilience via adaptation
– until 2050: increased risk of water stress; rising incidence of extreme weather
events
– after 2050: significant impact on agr productivity (shifts in production frontiers)
and on the global food system
19
Oilcrops market outlook and oil palm challenges
3. The case of oil palm
a)
b)
c)
d)
e)
Growth factors: productivity and area
Area expansion issues
Productivity improvement
Socio-economic dimension
Palm oil as BD feedstock
20
•
past growth:
– strongly based on area expansion
•
of which 50-60% forest conversion
recent trend:
– less primary forest conversion
– more conversion of cultivated land
Average soybean yield, USA
(tons per ha)
(rubber, degraded land, secondary forests)
metric tons
2.7
yield levels:
– only minor improvements
– but considerable yield gaps
linear trend
2.3
1.9
1.5
1975
1983
1991
1999
2007
Source : FAO
Average palm oil yield per ha (Malaysia)
Average FFB yield per ha (Malaysia)
24
22
20
4.5
linear trend
metric tons
•
metric tonnes
Oilcrops market outlook and oil palm challenges
a) Growth factors: productivity and area
18
linear trend
3.5
16
14
1975
1983
1991
1999
Source : MPOB
2007
2.5
1975
1983
1991
1999
Source : MPOB
2007
21
Oilcrops market outlook and oil palm challenges
b) Area expansion issues
• limited actual potential - except on forest land
• environmental costs associated with deforestation/other land conversion:
1.) carbon balance
– net carbon balance calculations pose problems
– oil palm carbon balance turns positive after
 ca. 80 years – primary forest conversion
 ca. 600 years – peatland conversion (high carbon stock)
 ca. 10 years – previously deforested, degraded, idle land
(comparison soybean Brazil: forest 300 years, grassland 37 years)
22
Oilcrops market outlook and oil palm challenges
2.) reduction in biodiversity
─ highest in forest conversion
─ some improvement when degraded land is reclaimed
3.) additional problems associated with deforestation
─ land fragmentation
─ loss of forest habitats
─ land clearing through fire (traditional method, cost effective, common
among smallholders)
c) Productivity improvement
1.) improved management practices
─ esp. in smallholder oil palm cultivation (closing the yield gap)
 typically using less productive land
 limited access to capital and labour
 limited access to technical/managerial know-how
23
Oilcrops market outlook and oil palm challenges
2.) improved planting material
─ smallholder access (closing yield gap)
─ traditional selection and breeding methods


19-year selection cycle
limited supplies of improved material
─ genetic modification



2008 breakthrough: sequencing of oil palm genome
much shorter selection cycle
risk: GM opposition by end-consumers
d) Socio-economic aspects
•
important benefits
– employment and income generation
– improved access to health care, education and other social services
– attractive for smallholders (good return-to-input ratio)
•
dangers associated with deforestation
– erosion of traditional culture, income sources, self-sufficiency
– conflicts over land tenure right
•
workforce issues
– labourers’ rights not respected
– ethnic conflicts in case of migrant labourers
•
smallholder dependence on large mills (setting the FFB price)
24
Oilcrops market outlook and oil palm challenges
e) Palm oil as BD feedstock
•
lowest-priced feedstock with good energy efficiency
•
competition from vegoils that enjoy direct policy support
•
all vegoil feedstock (as well as ethanol feedstock) achieve limited net carbon savings
compared to fossil fuels
esp. when counting direct/indirect land use changes
all food-crop based BF production affects food supply and food prices
 rising market instability
 negative repercussions on food security
•
•
investment uncertainties:
– further changes in policy interventions
(food security, environmental & budgetary considerations, standards)
– future crude oil-vegoil price ratio
– advent of (replacement by) 2nd generation feedstock & technologies
25
Oilcrops market outlook and oil palm challenges
4. Emerging recommendations
a) National priorities
oil palm cultivation
• minimize conversion of primary forests
• encourage use of idle, degraded and other marginal land
• promote best management practices in production & processing
– sustainable yield improvement
– reduced land degradation, pollution etc.
– biodiversity preservation , cover crops, IPM etc.
•
support smallholder involvement
–
–
–
–
–
•
•
improve access to high-yielding varieties
promote improved plantation management
encourage establishment of smallholder cooperatives
retain diversification
promote development of small-scale mills
secure funding for R&D and infrastructural works
enforce (and monitor adherence to) regulations
– environmental protection
– land tenure guarantees, labour rights etc.
– product quality (sustainability standards)
26
Oilcrops market outlook and oil palm challenges
Palm oil-based biodiesel production
• favour production on land not suitable for food production
• allow gradual expansion of BF industry; put in place entire commodity chain;
provide appropriate regulatory framework
• favour production for domestic market
 general support to rural development and overall economic growth
 meeting fuel needs in areas where feedstock is grown, esp. less accessible areas
• production for export offers limited scope
 main consumers rely on domestic sources (except EU)
 various barriers to trade remain (lack of harmonized specifications,
sustainability certification, tariff protection)
27
Oilcrops market outlook and oil palm challenges
a) International priorities
Food security
• coordinate national policies and market interventions to reduce food security risks
• encourage establishment of social safety net schemes
• accelerate multilateral trade liberalization
Biofuel sector
• improve policy planning and coordination
• harmonization of trade regulations, sustainability standards
• promote transition to 2nd generation technologies and feedstock
Climate change
• coordinate national policies
• foster analysis of impact on global agric. & food systems
• coordinate research & investment into adaptation measures
28
Oilcrops market outlook and oil palm challenges
Oil palm
• promote schemes that reward reduced deforestation and forest degradation
(e.g. REDD) and other control measures
• support voluntary, private sector initiatives on standards for sustainable production
and processing (e.g. RSPO)
─
─
─
•
application is demanding and costly; economic return is uncertain
adaptation to smallholder environment needed
supporting legal/policy reforms required at national level
coordinate investment into agric. R&D (productivity enhancement) and facilitate
technology transfer
29