The palm oil market: Where did we go wrong?

The global palm oil market size is expected to surpass US$147.6billion by year 2026 according to a recent market research. The market is currently growing at a cumulative average growth rate of 4.3 percent as stated by Beroe Inc. in their report on the market of the leader in the essential oils industry released in September 2019.

Global consumption is expected to increase by a further 3.9mmt to 68.4mmt. Total production output has been on the ascendency in the past few years as more and more research into its uses has caused a soaring in demand for use of its products in confectioneries, cosmetics, pharmaceuticals, biofuels et al.

Indonesia and Malaysia alone contributed a total of about 84 percent of global output; of which the latter has 57 percent and the former 27 percent. Though Indonesia is a market leader and seems unassailable in terms of their market presence, Malaysia is of much more interest for discussion due to a political history which they share with Ghana.

It is no news Malaysia attained independence and broke away from colonial rule officially on August 31,1957 – the same year we attained ours. It is however remarkable and worthy of note that oil palm was first introduced into Malaysia in the year 1870 by the British, and by the year 1917 their first commercial plantation project had begun at Tennamaran, Salangor.

In 1960, however, in a bid to reduce over reliance on rubber and tin, an Agricultural Diversification Programme was set up and the government of the time invested in improved oil palm varieties from Ghana – which had since1820 in the then-Gold Coast Colony had long been engaged in commercial trade of palm oil. By 1880, palm oil alone accounted for 75 percent of the colony’s total export value.

The size Malaysia’s economy, with a population of about 31.5million as at end of 2019, stood at US$365 billion; of which agriculture contributed 7.1 percent, representing an output of US$25.92billion. The palm oil subsector however contributed 37.9 percent of the agricultural output, representing a whopping US$9.82billion. It is quite interesting to note that just 10.5 percent of the Malaysian workforce is engaged in the agricultural sector.

See Also:  The reforms China needs

Today in Malaysia, about 4.5 million hectares of land is under oil palm cultivation, from which about 17.73 million tonnes of palm oil and 2.13 tonnes of palm kernel oil is produced annually. Malaysia is responsible for producing 11 percent of the world’s fats and oils production and 27 percent of export trade of oils and fats. The palm oil subsector is estimated to provide employment for about 600,000 people actively, and provides livelihoods for close to a million people. Malaysia also boasts of over 400 mills, 40 crushers, 50 refineries, 18 oleum chemical plants and about 25 biodiesel refineries.

Malaysia has also successfully integrated its high earning palm oil subsector into the financial market on their exchange Bursa Malaysia, and agricultural derivative products like crude palm oil futures (FCPO), palm olein futures (FPOL), crude palm kernel oil futures (FPKO), options on crude palm oil futures (OCPO), Refined Bleached Deodorised Palm Olein Options contract (OPOL).

Ghana on the other hand, with a population of about 30 million, boasted an economy size of US$67billion as at the end of 2019. The entire agricultural sector contributed 18.3 percent representing US$12.26billion, just exceeding the Malaysian palm oil sector by a little over US$2billion.

The most surprising revelation of all is how Ghana, with all our arable agricultural land resources, currently cannot meet local demand and has to rely heavily on imports at an alarming rate. The major players – BOPP, TOPP, GOPDC, Juaben Oil Mills, Ayiem Oils, Norplant Ghana Ltd. and Golden Star have a combined cultivation area of approximately 30,000 hectares while smallholder farmers have an area of about 300,000 hectares, giving a total of about 330,000 hectares countrywide.

See Also:  YFM@10: a true revolution in urban radio

In January this year alone, records from Malaysian Palm Oil Council reveal that Ghana imported 28,755mt of palm oil, representing an increase of 109.63 percent from January 2019’s figure of 13,717mt. The total imports in the entire 2019 year stood at 152,721mt, representing US$87.8million using the average annual price of US$575.

Again, using average monthly price for January 2020 which stood at US$834.85 per tonne, a total of US$24million has been spent in January alone on palm oil import. A historical outlook over the past 20 years shows a growing demand deficit locally which has been left unattended.

Data Source for Chart: United Sates Department of Agriculture

The output of the agricultural sector of Ghana in relation to the size of its workforce is quite alarming, and attention must be drawn to the use of technology; a proper integration of mid-scale and commercial agricultural activities with the financial market, wherein the issue of price risk faced by producers and consumers will be minimized; the design of specialised financial products which match the cyclical nature of agricultural production; and the introduction of agricultural index insurance at the rural level through rural banks and microfinance companies.

Until our agricultural inefficiencies are fully dealt with, the development we seek will forever remain but a fleeting illusion.

The author holds a BSc in Agricultural Engineering from KNUST, MSc Development Finance from UGBS and Securities and Investment Certificate from Ghana Stock Exchange. He’s been in the banking industry for the past six years and is also into retail trading of currencies, indexes and commodities on the financial market.

vote
Article Rating
Subscribe
Notify of
0 Comments
Inline Feedbacks
View all comments