Question

Case Study
Global Demand for Palm Oil Growing Rapidly

   The global demand for palm oil is rapidly growing. Thomas Mielke, executive director of ISTA Mielke GmBH which produces Oil World, projected that demand for palm oil would increase to between 62-63 million tonnes by 2015 compared to 45.5 million tonnes in 2010. However, major producers such as Malaysia and Indonesia are facing obstacles in meeting the growing demand.
   Palm oil comprising 57% of global vegetables oil exports, saw a below average global output growth of 500,000 tonnes in 2010. Indonesia, its biggest producer and exporter, needs to boost plantings to between 350,000 and 400,000 ha per year to satisfy future demand, yet its acreage expansion slowed in 2009 and 2010 which Mielke expects to restrict production in coming years. Malaysia’s output has declined in the same period, along with facing poor fresh fruit bunches (FFB) harvesting caused by shortage of labour, slow replanting and disappointing yields.
   La Nina, fertilizer cuts and shortage of labour have also led to a dip in palm oil stocks. However, Mielke expects output and stocks to recover in the short term, thereby limiting the adverse effects of low stock and struggle in expanding acreage. He further added that global demand for palm oil and other oilseeds from the food, oleochemical and biofuel industries will continue to rise.
   Moreover, limiting factors such as land, water and logistics are intensifying the conflict between food and fuel needs, Mielke said. He also noted that for biodiesel production, there is a need to source for alternative feedstocks.

Source: Adapted from The Star, 10 March 2011

Questions
According to the case above, what are the factors that contributed to a decline in the production of palm oil?

Answer 1

Following are the factors that led to decline in the production of the Palm Oil:

• Major producers of palm oil i.e. Indonesia and Malaysia are not able to produce required quantity of palm oil.
• Shortage of plantings producing palm oil is faced by Indonesia.
• Malaysia also facing harvesting problems due to shortage of labor, slow replanting and lower yields. All this has resulted in reduction in production of palm oil.
• La Nina, adverse climatic condition have also affected the palm oil production
• Shortage in fertilizers is another major cause of low palm oil production.
• The demand of palm oil from other sectors like food, oleochemical and biofuel industries have increased but production has not been increased to the same level.
• Scarcity of resources like land, water and logistics have also affected palm oil production.