The End of Cheap Palm Oil

Sub :Geo

Sec: Eco geo

Why in News

Palm oil prices, which have traditionally been lower than other vegetable oils, are increasing due to production stagnation and a surge in biodiesel demand. Indonesia, the world’s top producer, has increased its biodiesel mandate, reduced export availability and driving up global prices.

Rising Palm Oil Prices:

Indonesia increased the mandatory palm oil blend in biodiesel to 40% in 2024 and is considering a 50% blend by 2026.
The biodiesel expansion will significantly reduce palm oil exports, from 29.5 million metric tons in 2024 to an estimated 20 million metric tons by 2030.
Historically, palm oil was cheaper than other vegetable oils, with discounts exceeding $400 per ton.
In recent months, crude palm oil (CPO) has traded at a premium over crude soybean oil, sometimes exceeding $100 per ton.
In India, palm oil prices have surged to $1,185 per ton, up from below $500 in 2019.
Higher vegetable oil prices contribute to inflation, affecting both consumer economies and governments trying to manage food costs.

Palm Oil:

Native Region: Palm oil is derived from the oil palm tree (Elaeis guineensis), which is indigenous to West Africa.
Growth Conditions
Oil palm trees thrive in tropical climates, particularly within 20 degrees of the equator, requiring high humidity and temperatures ranging from 24°C to 32°C.
They prefer deep, well-drained soils rich in organic matter.
Oil palm trees are highly productive, with yields as high as 7,250 liters per hectare per year.
Indonesia is the leading producer, accounting for approximately 60% of global palm oil production.
The second-largest producer, Malaysia contributes a significant portion to the global supply.
Countries like Thailand and Nigeria also have notable palm oil production.
Palm Oil Production in India: India has been promoting oil palm cultivation, with significant plantations in states such as Andhra Pradesh, Telangana, Karnataka, Tamil Nadu, Odisha, and Kerala.
The Indian Institute of Oil Palm Research, located near Pedavegi in Andhra Pradesh, is dedicated to enhancing oil palm cultivation across the country.
Under the National Mission on Edible Oils – Oil Palm (NMEO-OP), efforts are underway to boost oil palm cultivation to achieve self-reliance in edible oil production.
The expansion of palm oil plantations has been linked to deforestation and biodiversity loss, leading to global discussions on sustainable production practices.

Challenges in Palm Oil Cultivation:

Aging Plantations and Low Replanting Rates: Oil palms lose productivity after 20 years and must be replaced after 25 years, leaving land unproductive for 3-4 years. Farmers are reluctant to replant due to loss of short-term earnings.
Environmental challenge: Deforestation concerns have restricted new plantation expansion in Indonesia.
Labor Constraints: Labour shortages and the spread of Ganoderma fungus are further reducing yields.
Limited Expansion in Other Countries: While countries like Colombia, Ecuador, Ivory Coast, and Nigeria have increased palm oil production, their growth is insufficient to meet global demand.