Edible oil production has increased consistently since before 1961 from 17.4 million tons to 130 million tons by 2008. Global demand appears strong and this trend is likely to continue.
The main edible oils produced today are as in the chart below:
The two leading edible oils in the world are Palm and Soya Oil. For most of the past half century, Soyabean Oil has been the benchmark for edible oils. But with increasing substantial plantings all over the world and particularly in South East Asia, Palm Oil production has been steadily increasing and now exceeds that of soya. The margin becomes even more pronounced when palm kernel oil is taken into account. Palm Oil is today the leading edible oil produced in the world. The relative growth in importance of palm oil has been relentless for decades.rape is the next most popular edible oil after palm and soy, followed by sunflower, cottonseed, groundnut, palm kernel and coconut oils.
Actual consumption and prices in different countries reflect the relative popularity of the oils given production levels. Groundnut oil, of the major oils, probably commands the highest price premiums. Traditionally, coconut and palm kernel oils have enjoyed a modest premium over the benchmark soya prices.
The lead established by palm oil is, in our view, likely to keep growing. The earlier attempts by the Soyabean lobby to discredit lauric oils did not prevent the process. Although soyabean oil is being tried for bio-energy, Malaysia is setting the pace for using palm oil in a diesel mix there is some reconsideration now that petrol prices have fallen.
Although prices have been increasing in current terms over the past four decades, in real terms they have been declining. The hike in prices last year was the first time that there was some recovery in real terms although not even back to the levels at the end of the 1960s but are declining again. Increases in productivity and depreciation of currencies in many producing countries against the dollar over much of the time has kept the sector viable.
The two largest edible oils can thus be very loosely catagorised as Soy being a South American product and Palm a South East Asian one. But the two target the same market as their most important, namely, China and India.
The Asian market has seen a strong growth in production and consumption of edible oils with Indonesia setting the pace for production in a close run race with Malaysia. They are followed by China and India, with Philippines, Thailand, Pakistan, and Viet Nam trailling.
Malaysia and Indonesia export 70% of the edible oil they produce or around 28 million tons while China and India import 12 million tons which leaves the region as a whole in net surplus. Some of the imports come from outside the Region, mainly South America, but around 66% are from the Region. Consumption in India and China is growing rapidly and is increasingly dependent on palm oil, over 16 million tons imported by the latter two in contrast to 2.7 million tons of soy oil.
The four leading producers of Soyabeans are: USA, Argentina. China and Brazil. Of them, USA and China mainly produce for their domestic markets, with USA a relatively minor exporter. Argentina and Brazil are the major exporters and China, India and Iran the leading importers. Despite increasing production steadily, China and India simply do not produce enough and are the two leading importers. The two markets amount to over 9 million tons of imports.
Palm oil is dominated by two South East Asian producers, Indonesia and Malaysia.They each produce more than ten times the nearest alternative producer. Nearly every Asian country that can is planting oil palms and there are ambitious schemes in Africa and South America. A great deal of experience has been gained in undertaking plantation and small holder oil palm in the region.
China and India are also the leading importers of Palm Oil. The two countries have a large deficit in edible oil production and constitute the largest market in the world.They have both gone through periods during which they were striving for self sufficiency but the goal proved elusive a long time ago with a fast rate of growth in consumption.
The two import far larger quantities of palm than soy oils. It is not surprising given the dominance of Indonesia and Malaysia as producers of Palm Oil. No wonder that when lauric oils were being attacked in the American press on alleged health grounds, Malaysia and Indonesia had no cause to worry since they were next door the world's largest market. This discovery led to continued Palm plantings in the two countries as well as througout the region.
There is a potential problem posed by too many countries planting oil palm. This can lead to continued pressure on prices although Malaysian use for biodiesel will take up some of the demand. The latter is reported to be targeted as high as 500,000 tons which would put upward pressure on prices and is why it is being pursued. Oil palm is being planted fairly widely and this trend is likely to continue.
When journalists write on edible oil prices, they necesaarily focus on immediate factors that may be affecting prices. Factors such as rising consumption in India and China and ethanol or bio-fuel consumption are sited to explain price fluctuations, particularly when tehy are rising. Last year, when prices peaked at abnormally high levels, all these factors were sited as explanations of what had happened. In reality, prices last year owed much to commodity speculation which went hand in hand with overheating in the capital markets. There was simply so much global money being mobilised and levereged that it was being used to speculate on commodities as well as financial derivatives and the housing markets. When the bubble collapsed, so did commodity prices.
The collapse is now being explained in terms of a temporary development by many observers. That is wishful thinking in our opinion. Price movements over a long period of time have been in roughly 5 year cycles that owe more to El Ninio weather patterns than anything else. That is the only possible explanation because nearly all the edible oil prices have moved in tandem and weather affecting say coconuts in the Philippines does not adequately explain why the other edible oils prices moved in the same direction.
The two leading oils prices, soya and palm are shown above to have moved very closely together in current dollar terms. In real terms the cycles have been declining in value. Commercial viability has been maintained by improvements in productivity and through devaluations against the dollar. The hike last year led to a very temporary recovery in real values but it was short lived and something of an illusion. The real problems have reasserted themselves this year with a collapse in those prices to traditional levels.
The problem with the cycles is that the high and low points are impossible to predict or a fortune could be made reliably through forward trading. It is a good idea in any case to hedge against the price movements.