Southeast Asia's Economies
The Economics of Palm Oil
Why palm oil is the world's most used vegetable oil, how Indonesia and Malaysia dominate production, India's role as a top importer, and the deforestation debate.
Palm oil is in cooking oil, biscuits, noodles, soap, shampoo and biofuels. It is the world’s most widely produced vegetable oil.
Why palm oil dominates
- High yield: oil palms produce far more oil per hectare than soybeans, sunflowers or rapeseed.
- Low cost.
- Versatility: it is semi-solid at room temperature and stable for cooking and processing.
Who produces it
Indonesia and Malaysia together produce the large majority of the world’s palm oil. The industry employs millions, including many smallholder farmers.
India’s role
India is one of the world’s largest importers of edible oils, and palm oil is its biggest edible oil import, mostly from Indonesia and Malaysia. It is widely used in cooking and packaged food because it is cheaper than other oils.
India launched a National Mission on Edible Oils - Oil Palm in 2021 to expand domestic oil palm cultivation, especially in the northeast and the Andaman and Nicobar Islands, to reduce import dependence.
The deforestation debate
- Expansion of plantations has cleared large areas of rainforest and peatland in Indonesia and Malaysia, releasing carbon and threatening species such as orangutans.
- Peat fires have caused severe haze across the region.
Responses
- The Roundtable on Sustainable Palm Oil, founded in 2004, certifies sustainable production.
- The EU Deforestation Regulation requires companies to prove products like palm oil, soy and coffee were not grown on recently deforested land. Its application was delayed after pushback from producers.
- Indonesia and Malaysia argue that such rules discriminate against their farmers.
Price swings
Palm oil prices are affected by weather, biofuel policies and export restrictions. In 2022, Indonesia briefly banned palm oil exports to control domestic cooking oil prices, sending global prices higher and affecting Indian consumers.
A family in Delhi cooks with a blended oil containing palm oil imported from Indonesia. When Indonesia banned exports in 2022, the price of their cooking oil jumped within weeks.
Other oils need much more land to produce the same amount. Sustainable production may be better than switching.
- Palm oil is the world's most widely produced vegetable oil because of high yields and low cost.
- Indonesia and Malaysia dominate production.
- India is a top importer and is expanding domestic oil palm cultivation.
- Deforestation concerns led to certification schemes and EU rules.
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