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Palm oil is a staple of Pakistan’s import bill but its price remains at the mercy of several different trends. To understand its impact on Pakistan’s edible oil sector, it is essential to understand the many factors that influence its movements.

At a global level, palm oil has received a lot of bad reputation to the point that some multinational food chains label their products “palm oil free”. The Palm Oil Agribusiness Strategic Policy Institute (PASPI) asserts that those soy bean oil producers are behind intensive campaigns against palm oil due to their inability to compete.

It makes sense that soya bean oil producers are made the villain here. All vegetable oils are interchangeable to a certain extend and therefore impact each other’s prices. However, soya bean has the deepest influence because of its share in the global edible oil pie. In 2016, soya bean was planted over 122 million hectares accounting for over 60 percent of edible oil seed plantation worldwide, as per PASPI. This is why, understanding palm oil price trends require understanding soya bean industry dynamics.

China is the biggest market for oils and fats, states a paper by Malaysian Palm Oil Board. Its consumption patterns indicate a steady increase from 26 million tons is 2005 to 37 million tons in 2015, accounting for nearly a fifth of global consumption. While at imports of $3.5 billion in 2017 of palm oil China is one biggest markets, it is a much bigger importer of soya bean seeds whose imports stood at nearly $40 billion in 2017 (ITC data).

China imports soya bean as feed for its cattle which subsequently increases the local supply of soya bean oil thus impacting demand for palm oil. China imposed 25 percent tariff on US soya beans as part of the trade war between the two behemoths which led to stock piles in US, especially since farmers enjoyed a bumper crop during the harvest season.

On the other hand, Indonesia has identified palm oil sector as a strategic industry and has been investing heavily in it. In 2016, PAPSI states Indonesia’s Crude Palm Oil (CPO) production was 33.5 million tons which it plans to increase to 42 million by 2020. So while the US and China waged their trade war, Indonesia’s production of palm oil continued to rise.

India is the single largest market for palm oil imports that amounted to $6.7 billion in 2017, as per ITC data. To support indigenous supply of edible oil, India raised import tax to its highest level in more than a decade. Media sources indicate that duty was raised from 30 to 44 percent on crude palm oil while tariffs on RBD were increased from 40 percent to 54 percent during the current fiscal year, thus discouraging imports.

The US China trade war has had the single biggest impact on palm oil prices. However, other factors putting downward pressure are EU’s expected ban on palm oil for biofuel (read “EU’s palm oil ban in Pakistan’s favour” published on January 2, 2019) and a strong year for sunflower growers in Ukraine.

In the domestic market, these trends have an impact of pushing down palm oil imports. Data released by PBS indicate that palm oil price per ton has decreased by about 20 percent YoY for 5MFY19. While imports have declined by 9 percent in dollars terms, quantity imported has increased by 118,000 tons of which a large portion of the increase was CPO. This is a boon to edible oil sector, but more on this later.

Copyright Business Recorder, 2019

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