Indonesia

India and China behind Asia’s growth in palm oil consumption

By RJ Whitehead

- Last updated on GMT

India and China behind Asia’s growth in palm oil consumption

Related tags Palm oil

In spite of a recent downturn in prices, there is still cause for optimism for Indonesia’s palm oil producers as a result of growing consumption by China and India. 

According to a report by Frost & Sullivan, this downturn will be short-lived, and at the same time, Asia’s two economic superpowers are demanding more edible oils.  

Chris de Lavigne, Frost & Sullivan’s global vice-president for consulting, said that the average per-capita consumption of vegetable oils stands at 19kg in China and 14kg in India—figures that remain well below the Western average of 65kg per person. 

In spite of the low numbers, crude palm oil consumption has been on the rise over the last two decades, witnessing a compound annual growth of 7.5% over that period to become the largest vegetable oil consumed in volume terms, and it now represents around one third of the vegetable oil market. 

Were palm oil to sustain such a rate of growth over the next decade—demand and land availability permitting—the market would come close to 100m tonnes by around 2022. 

Growth will mainly be driven by Indonesia, which has more landbank available than Malaysia, especially after the country overtook Malaysia several years ago as the main palm oil producer.

Lavigne also said that weather is one of the key factors in the supply equation of oilseeds and palm oil. “It is an important catalyst to price movement​,” he said. ​“Eight to 16 weeks’ dry conditions cause moisture stress in oil palms, and this can reduce production by up to 30%, depending on severity​.”

In wet conditions, eight to 16 weeks’ heavy rainfall can cause immediate disruption of harvesting and logistics. This can reduce production by up to 15% of the potential yield in severe La Nina events.

Conversely, we have seen what the recent glut of soy oil and vegetable oils can do to a market, coupled with a slight slowdown in growth due to slowing economies​,” De Lavigne added.

Around half of Indonesian oil palm plantation is owned by private companies, with smallholders accounting for 42%, and the remaining 8% in the hands of state-owned companies.

While Indonesia still has a significant amount of immature land to come into production, its rate of new plantings has slowed in recent years. In Malaysia, growth has slowed as suitable new land for planting is diminishing rapidly. Labour costs are increasing at a rapid rate in Indonesia and need to be taken into consideration​,” said De Lavigne.

Though Indonesia must address issues relating to deforestation and subsequent loss of biodiversity, land rights, land use and land acquisition, and the use of pesticides and fertilisers, De Lavigne said he remained confident that the country can make progress in addressing these issues.

Related topics Markets South East Asia Supply chain

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