Indonesia’s Palm Oil Industry : Feeding The World

The benefits of Indonesia’s palm oil are not only enjoyed by the Indonesian people, but almost all the people of the world through that country’s palm oil exports. The main destinations of Indonesia’s palm oil exports are India, China, the European Union and other countries (Figure 1). Palm oil as a vegetable oil is available in sufficient volume globally and at competitive prices. This is why palm oil is consumed in almost every country in the world.

Figure 1 :        Indonesia’s palm oil exports by countries of destination (database PASPI)

The presence of palm oil also has reduced the problem of food-fuel tradeoff faced by developed countries including in the European Union. Based on an OECD study (2007), if the EU reduces 10 percent of its fossil fuel consumption and replaces it with biofuels (as per the EU energy directive), the EU must convert 70 percent of its agricultural land into vegetable oil plantations.

Meanwhile, to substitute 10 percent of diesel with soy oil-based biodiesel, the United States must convert 30 percent of its agricultural land to soybean farming, which could disrupt the food security of the United States and the EU, even globally.

With the availability of palm oil in the world, the program to substitute fossil fuel with biodiesel can be done in the EU and United States, without having to convert agricultural land. This has been confirmed in the EU where about 38 percent of EU palm oil imports are used for energy both biodiesel and electricity.

The availability of palm oil in developed countries has also created economic benefits for importing countries. In the EU, for example, the economic benefits created by the annual consumption of palm oil raised the EU’s GDP by 5.7 billion euros, providing government revenues of 2.6 billion euros and creating employment opportunities for 117,000 people (Table 1).

Table 1 :        Economic benefits of using palm oil on the economy of the European Union

Description

Value
Impact on GDP (euro million)
Indirect impact

2,703

Indirect impact + consumption induction

5,764

Impact on government revenues (euro million)
Indirect impact

1,227

Indirect impact+ consumption induction

2,617

Impact on job opening (000 person)
Indirect impact

67.1

Indirect impact + consumption induction

117.2

Source: Europe Economics, 2014 the Economic Impact of Palm Oil Import in the EU

 

Palm oil prices in international markets are cheaper than other vegetable oils (Figure 2). With more competitive prices, the palm oil gives more benefits to the world community especially in low-income countries.

Figure 2 : Comparison of palm oil prices with those of other vegetable oils (World Bank, 2017)

First, with the relatively cheap price and availability of its supply in the world market, palm oil can prevent excessive increases in prices of other vegetable oils such as soybean oil, rapeseed oil and sunflower oil. second, the low palm oil prices help people in low-income countries such as in Africa and Central Asia and third, with the low prices, people in low-income countries are still able to consume much vegetable oil.

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