Monday, October 25, 2021

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Global Recovery from the Pandemic Creates a Surge in Palm Oil Demand

In spite of the ceaseless smear campaign against palm oil, the industry shows signs that it will thrive during the economic recovery from the ravages of Covid-19. Palm oil has proven its worth as a green investment that will dominate the market in the years ahead.

By Dupito D. Simamora


As the world recovers from the Covid-19 pandemic, the palm oil industry, together with other commodity-producing industries, is experiencing a pleasant side effect. Palm oil prices are today the highest in more than a decade because of rising global demand and reduced production in the Southeast Asian countries that dominate palm oil production.

In the early days of the pandemic, shutdowns in China, one of the biggest importers of palm oil globally, led to sharp fall in demand and price. That country’s recovery from Covid19 in late 2020 coupled with demand from India brought a new spate of buying which sent the price of palm oil to heights that have not been seen for a decade. That was one of the surprises of the 2020 Covid-19 phase.

The Indonesian Palm Oil Association (IPOA), locally known as Gabungan Pengusaha Kelapa Sawit Indonesia (GAPKI), reported in March this year that palm oil had reached a 13-year high.

Since then the onset of the Indian variant of Covid-19 somewhat tempered the demand for palm oil but as the largest importer of palm oil globally strives to control the situation, prices of palm oil have kept a steady pace. Prices are expected to fluctuate but most palm oil analysts predict that the price will remain high until the end of 2021.

Needless to say, even as the palm oil industry struggles with the effects of the pandemic, especially in Malaysia, which restricted the entry of foreign workers to control the spread of Covid-19, people in the palm oil industry are smiling broadly. Smallholders are especially relieved and grateful.

Before the pandemic, prices for Fresh Fruit Bunches (FFBs) had stagnated for years. Media reports painted a bleak picture of Indonesian smallholders unable to feed their families as the prices for FFBs was so low. The main purveyors of this this story were foreign media that have for years, tried to denigrate the role of palm oil in lifting rural Indonesians out of abject poverty. For Indonesia’s smallholders, the repercussions of the pandemic are welcome, as palm oil prices continue to hold steady even against soy in the global markets.

The same sentiment prevails in the corporate boardrooms of companies in the palm oil industry. Even as early as the last quarter of 2020, corporate filings were reporting improved dividends for shareholders as their earnings rose.

However, the profitability of the palm oil industry, even in the midst of a global pandemic, should not tempt lead key players in the industry to seek to expand their land banks. An important lesson from the multiple take-overs or acquisitions of the industry as a result of the financial crisis of 2008 should be kept in mind. The capping and moratorium on the land banks for palm oil plantations by the two leading producers need to be observed and enforced.

Back then, there was an oversupply of vegetable oils in the global market, a setback from which the palm oil industry almost failed to recover. The situation is much different today as unsteady weather conditions in countries that grow competing vegetable oils have lessened their influence on global supply. The global demand for edible oils has risen exponentially as human populations have grown in past years. Most importantly, the urgent need to address the climate change effect of fossil fuels has led to a high demand for biofuels in order to decarbonize.

Indonesia’s world leading initiative towards green fuels has seen the uptake of a major portion of its palm oil production. This has truly supported palm oil pricing as the government has envisioned. Similar initiatives are being put in place in palm oil producing countries like Malaysia, Thailand and Colombia as green energy initiatives soak up excess production. This strategy and policy of those major producing countries need to be strengthened . In this regard, the Council of Palm Oil Producing Countries (CPOPC) has an important role to play. Working in greater concert will result in greater control of palm oil prices globally.

Indonesia’s effort to reduce emissions from fossil fuels via increased usage of biofuels has been foisted as a threat to Indonesian forests and biodiversity. The sources of these allegations are the usual propagandists in environmental media whose smoke and mirrors reports are losing credibility.

One need only go back to their warnings years ago, that because of palm oil production, orang-utans would be extinct by 2008, only to be confronted by the fact that the orang-utan population had doubled by then. Then the claim would be bruited that the orang-utan would go extinct in the next ten years after 2008. Fast forward to 2018: the latest study shows that orangutan populations have almost quadrupled since their predicted extinction in 2018. That is how the plight of the orang-utan has been a powerful tool used by many anti palm oil groups to attack the palm oil industry.

This is not to mock the quality of the scientific reports in 1998. It was poor even as an estimate, but back in those days, we all worked with whatever was available.

Despite the new technology that has made accurate facts available, the palm oil industry remains a favorite punching bag of pop media. One has to realise that the critics of palm oil make money simply by taking on an anti-palm oil position. It is ironic that some of these people make a living from palm oil despite the fact that they have never set foot in a palm oil producing country. Nor do they feel responsible for the effects of their smear campaigns in the face of the significant contributions made by palm oil to the attainment of Sustainable Development Goals in the developing countries in the tropical areas of the Indo-Pacific, Africa, and Central and Latin America.

Their smear campaign is an outrage to millions of farmers and workers who rely on palm oil to make a better living. And those farmers do care about preservation of the environment and biodiversity contrary to the disinformation spread by the critics.

Palm oil producing countries, including Indonesia, Malaysia and Colombia have, as of recent years, presented strong arguments to expose the travesty. This move to counter anti palm oil propaganda is gaining traction as pop media shifts their attention to more vulnerable targets such as soy production.

Having won this street fight for the day, the palm oil industry hopes that the global community recognizes the importance of the crop to a sustainable planet. With the unstoppable growing demand for vegetable oils each year palm oil offers the best hope, as it can achieve more production with much less land bank used, compared with other vegetable oils.

How will this play out in the boardrooms from Jakarta to Singapore and New York and London at a time when ESGs and green investments are dominating the news?

The good news for green investors is that, having fought for so long to establish its green credentials, the palm oil industry is best poised as an investment that is green and profitable.

The surging demand for palm oil especially when soy becomes too expensive shows unequivocally that it is a crop that can sustain biodiversity and human life in the 21st century. As a cultivated source of food and energy, there is no equal to palm oil on planet earth.

One of the lessons learned from the pandemic is the proven resilience of the palm oil industry. The world has a better solution as a result. And palm oil leads the vegetable oils in feeding the world in a sustainable way.


Editor’s note: The views expressed in this article are the author’s and do not necessarily reflect the views of PinterPolitik.


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