palm plantation

Shortages of Palm Oil: Why and How It Is Affecting the Market

Palm prices is currently higher than ever. One of the reasons for the price increase is to compete with prices such from soya oil and canola oil, which respectively achieved an all-time high in terms of price. Another reason would be that palm have been facing tight supplies, while demand is higher than ever due to the economies that are slowly recovering from COVID-19. This has caused palm product prices to be at the highest point ever in history, and it can be seen in the graph below. Palm shortages were mostly caused by complications in production stages that is happening mainly in Indonesia and Malaysia

crude palm oil prices chart
Crude Palm Oil prices throughout the year

Indonesia is currently facing problems in supplying palm products at a desired volume. Indonesia’s vice chairman for Indonesian Palm Oil Association, Togar Sitanggang, had a say in this matter, explaining his concern with the production capacity and what might cause the drought in production of palm oil. He shared that Indonesia have not had a new plantation for 10 years as of now, which has already shown the effect that palm production have been flat and decreasing ever since. Moreover, the problem might also be from an El Niño effect back in 2019. El Niño affects palm production as it causes less rainfall and created a stress effect to the process, resulting in less fresh fruit bunch (FFB) in the future.

 

Meanwhile, Malaysia has also face concerning production issue in palm productions, but due to a different reasoning. In this case, COVID-19 has impacted Malaysia’s efficiency in production, as the country has been hit with enormous new cases recently. The event has caused the Malaysian government to close the international border of Malaysia. It affects the production of palm products, as it relies heavily on migrant workers. However, Malaysia has approved 32,000 migrant workers entry to the country with the purpose to aid with plantation processes, meaning that production might increase soon.

Palm Plantation
Labor working in Palm Plantation, Malaysia

In short, due to several reasons that held back production of palm derivatives and its current high demand, prices of these products are higher than ever. It is predicted that palm products will continue to have high prices until middle of 2022. Unless there is an improvement to production, price for palm and its derivatives alike will continue to increase, as demand will rise due to the economies are continuing to recover from COVID 19.

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