09 November 2008

Malaysia, Indonesia to curtail palm oil production due to low prices

Rhett A. Butler, mongabay.com, November 8, 2008

Malaysia and Indonesia ̵ countries that account for more than 85 percent of global palm oil production — will cut production in an effort to shore up collapsing palm oil prices, reports The Jakarta Post.

The agricultural ministers for both countries agreed to initiate a 300,000-hectare replanting program that will replace aging trees with seedlings of higher-yielding varieties. The seedlings will begin to bear oil palm fruit ("fresh fruit bunches") for harvest in three to four years' time.

"Demand is projected to slow down in every sector next year as a result of global recession. We're preventing a possible oversupply of palm oil that may occur next year by replanting trees," Achmad Mangga Barani, the director general for plantations for Indonesia's Agriculture Ministry, was quoted as saying. "This hopefully will help boost the palm oil price to a normal level -- at around US$700 to $800 per metric ton."

This chart shows that Barani's suggestion that 'normal' palm prices in the $700 to $800 per metric ton range are grossly misleading — palm oil prices averaged $503 from Jan 2008 through Sept 2008 and $667 from Jan 2005 through Sept 2008.
In recent years the Indonesian and Malaysia palm oil industries have become notorious for their misinformation campaigns, especially in terms of the environmental performance and social impact of palm oil. Green groups and consumer NGOs regularly accuse palm oil industry bodies of greenwashing tactics.

Palm oil prices in Malaysia have fallen from more than $1200 per ton earlier this year to a three-year low of around $376 per ton on Oct. 28. Palm oil prices have lately moved in step with the price crude oil, which has also rapidly retreated from recent record high nominal prices.

The decline in palm oil prices is expected to slow expansion of oil palm plantations in Indonesia and Malaysia, a development that will please environmentalists who blame the palm oil industry for large-scale destruction of rainforests across Southeast Asia.

The new plan calls for replanting of 50,000 hectares in Indonesia and 250,000 in Malaysia. Indonesia, which has significantly lower palm oil yields than Malaysia due to marginal oil palm varieties and fewer industrial producers, will aim to replant 125,000 ha by 2011.

Copyright mongabay 2007

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