Emerging Markets: Opportunities for Palm oil in Asia Pacific Region

Palm oil is the most important commodities for Malaysia. According to the Department of Statistics, palm oil holds a 2.8% share in the Malaysian GDP in 2018. It is well received and sold into more than 160 countries globally.  In the global palm oil market, Malaysian palm oil (MPO) is always playing second fiddle to Indonesian palm oil (IPO) as world palm oil supplier. Asia Pacific region is the important market for MPO due to the potential growth in the countries’ GDP growth, growing middle-class consumers, urbanization and significant growth in the manufacturing sector. MPO major markets in the Asia Pacific region are the Philippines and Vietnam which accounted for about 41% of the total palm oil import in the region. Besides these two countries, MPO also has potential to grow in countries like Japan, South Korea, Taiwan, Cambodia and Myanmar. Table 1 shows the export performance of Malaysian palm oil to those countries.

Table 1: Malaysian Palm Oil Export (MT), 2015-2019

Country Year
2015 2016 2017 2018 2019
Japan 544,739 456,399 502,715 458,622 498,359
South Korea 378,656 386,348 404,350 364,942 423,105
Taiwan 194,046 201,245 221,755 218,122 223,560
Myanmar 205,937 197,702 133,958 90,670 76,475
Cambodia 1,531 3,206 3,398 2,253 1,821
Total 1,324,909 1,244,899 1,266,176 1,134,609 1,223,320

                        Source: MPOB

Japan

Japan is always being an important market for MPO. For the past five years, the import of MPO in Japan hovering around 400,000 to 500,000 MT. Palm oil is the main imported oil in Japan with a share of 68% of total oils and fats import in Japan. Palm oil is widely used in the food and non-food industries. According to the USDA report, 14% of palm oil is used as cooking oil which normally being blended with rice bran oil or lard to cater to the consumers’ demand for taste and flavour. While about 38% used for margarine and shortening as a deep frying fat for the food manufacturing industry. For now, the food sector, 26% of palm oil is used as an important ingredient in producing detergents, soap, cosmetic and also bioenergy sector. Demand for palm oil in Japan is expected to continue driven by the country’s growth in the manufacturing sector and steady economic growth. The Japanese government is looking forward to accelerating the adaptation of its renewable energy initiative. They target in 2030 their renewable energy share will be at 24% from the current utilization rate at 10%. Since their first palm oil power plant opens in 2014, the demand for palm oil particularly palm stearin has increased in their energy sector. The demand for palm oil in the non-food sector is expected to increase within 5 per cent.

South Korea

MPO export to South Korea recorded at an average of 390,000 since 2015. Palm oil in South Korea has a strong presence in its food, cosmetic and biofuel industry. Competitive pricing, versatile and easily available is the main reasons why palm oil is the most preferred oil in South Korea. The edible oil imported by South Korea in 2019, palm oil leads the way at 48%, followed by soybean oil (26%), rapeseed oil (12%) and other oil (13%). In South Korea, palm oil is largely being used in the commercial sector instead of consumer sector particularly in instant noodle and packed food industry. Growing in the food sector will continue to drive demand for palm oil especially in the packaged food. In 2018, the South Korea government has increased its biodiesel mandate to 3%(until 2020) from 2.5% in 2016. South Korean government has set a 5% biodiesel mandate in the future. However, due to the low price of crude oil, it is wise for Japan to maintain at 3% biodiesel mandate. Demand for palm oil for biodiesel will continue at the same level in the coming months.

Taiwan

Taiwan is a consistent market for MPO with an average import at 210,000 MT per year from the past five years. MPO holds 97% of the market share in this country. Three-quarter of the palm oil is used in the food processing industry such as instant noddle and cooking oil (blending and industry usage) and also in HRI (Hotel, Restaurant and Industries) sector. Food processing sector in Taiwan produced an estimated USD18 billion per year which accounted for 3.6% of the GDP. Consumer preference for convenience to eat is one of the factors that develop easy-to-prepare meals which give potential growth in this sector. As reported in Focus Taiwan, Ministry of Economic Affairs (MOEA) expected that Taiwan’s food and beverage sector will show a slow growth this year due to decline in dining out habits due to the COVID-19 pandemic. The sector shows a decline of 2.8 per cent year-on-year in the two months (January and February). Even though the industry may face difficulties this year due to COVID-19 pandemic, other sectors such as food deliveries, supermarkets and hypermarkets show upward trade which creating demand for palm oil in the market. Generally, increasing growth of fast food chains and casual dining restaurants in Taiwan will also boost the consumption of food ingredients particularly palm oil.

Myanmar

Myanmar is one of the important palm oil markets in ASEAN. The local oils and fats production only can cater 32.7% of the country’s consumption. 70% consumption of oils and fats in Myanmar filled by import which palm oil filled the gap by 67% from total oils and fats consumption. The main palm products imports in Myanmar are palm olein and cooking oil mainly used for the HORECA industry and food manufacturing. With the strong palm oil import trends at 5.8% CAGR for the past 3 years, it is estimated that palm oil import in Myanmar will close to 1 million this year. Referring to Table 1 above, Malaysia exports exceed 200,000 MT in 2015. Unfortunately, the export has deteriorated which is mainly due to the competitive price with Indonesia. However, the market is too important for MPO to ignore. MPO industry needs to continue to serve the market by forging a good relationship with the major palm oil importers which be headed by Myanmar Edible Oils Dealers’ Association (MEODA). 

Cambodia

Cambodia is one of the potential countries for MPO in the ASEAN region. With a population of 16.25 million in 2018 and GDP growth around 7.5% per year may give a bright opportunity for palm oil import to grow in this country. The main palm oil supplier for Cambodia is Thailand with a share of 74% while Malaysia holds only 17% of the total palm oil import of Cambodia. Due to Cambodia is a price-sensitive market, price of MPO is hard to compete with Thailand in terms of logistic cost. In Cambodia, palm oil is used in the food processing industries and also HORECA sectors. Thus rapid urbanization, urban migration and rapid extension of the HORECA sector continue to drive growth in the modern food service, food retail and food processing sectors which may spur the demand of palm oil in Cambodia. P

Prepared by: Muhammad Kharibi & Rina Mariati

*Disclaimer: This document has been prepared based on information from sources believed to be reliable but we do not make any representations as to its accuracy. This document is for information only and opinion expressed may be subject to change without notice and we will not accept any responsibility and shall not be held responsible for any loss or damage arising from or in respect of any use or misuse or reliance on the contents. We reserve our right to delete or edit any information on this site at any time at our absolute discretion without giving any prior notice.

You can share this posts: