06/03/2013 (Hindu Business Line) - With high oil yields and land-use efficiency, palm oil contributes significantly to the world’s oils and fats market, accounting for 10 per cent or 18.8 million tonnes out of 185 mt produced globally; yet this oil has become the target of criticism mainly from the developed countries where high production costs and low yields have made their own oilseeds uncompetitive, Tan Sri Bernard Dompok, Malaysia’s Minister of Plantation Industries and Commodities, said. He was addressing over 1,200 strong participants from across 50 countries at the inaugural ceremony of Palm and Lauric Oils Conference Price Outlook for 2013-2014 here on Tuesday.

Malaysia’s palm oil production comes from a mere five million hectares of land area which is less than two per cent of the 258 million hectares of total global area under oilseed crops, he pointed out.

Reminding producers that the world palm oil market was highly competitive, the minister observed that global economic slowdown recorded in the third quarter has contributed towards increasing domestic stock levels and this has resulted in lower crude palm oil prices as compared with prices that prevailed in 2011. Traders have estimated Malaysia current palm oil stocks at 2.5 mt.

“In this context, the Malaysian government has implemented measures to enhance the competitiveness of the oil palm industry including restructuring the export duty on CPO and providing replanting incentives beginning this year”, he asserted.

It is well known that world’s leading producers-exporters Indonesia and Malaysia are currently holding humungous stocks of palm oil inventory in addition to expanding production, and there is fierce competition between the two suppliers to capture market share. Both have adopted a dynamic tariff mechanism to retain market share. While supplies are plentiful, demand side is not looking robust as major destinations too are holding large stocks.

The importance the oil palm sector to the Malaysian economy may be gauged from the fact that in 2012 palm oil and products earned ringgit 71.4 billion (about $24 billion) in foreign exchange, accounting for a little over 10 per cent of the country’s total merchandise exports.

Asian countries China, India, Pakistan and Bangladesh are large importers of palm oil. Malaysia is concerned about losing market share to Indonesia.