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Palm Oil - Economics of the Driver of Global Vegetable Oil Markets Palm Oil - Economics of the driver of global vegetable oil markets Dessy Anggraeni, Yelto Zimmer Thünen-Institut of Farm Economics Pageagri 0 benchmark Dessy Global Anggraeni Forum , Yelto Zimmer st Des Moines, 21Palm August Oil – 2014 Economics of the driver of global vegetable oil markets Why this study? (1) Demand for vegetable oil is growing fast (2) Many people wonder about palm oil (3) Therefore we wonder about: a) How are markets connected? b) How competitive is palm oil compared to soybean oil? c) What are the main drivers? Page 1 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Contents Part 1. Overview of global vegetable oil market Part 2. Palm oil production system Part 3. Economics of palm and soybean oil production Page 2 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets 1. Overview of global vegetable oil markets Vorname Nachname Thünen-Institut für XXX PageOrt 3 Dessy Anggraeni, Yelto Zimmer Datum Palm Oil – Economics of the driver of global vegetable oil markets Breakdown of vegetable oil production (2002 vs. 2012) 2002 2012 Palm Oil Other Oil Other Oil Palm Oil 27% 30% 27% 32% Rapeseed Rapeseed Soybean Oil Oil Soybean Oil 15% 13% Oil 30% 26% Palm oil in a fast growing market outperforms all other vegetable oils Source: FAOSTAT Page 4 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Main palm oil exporters (2008 – 2012) 45.000 40.000 35.000 30.000 25.000 20.000 in 1000 tons tons in 1000 15.000 10.000 5.000 0 2008 2009 2010 2011 2012 Indonesia Malaysia Thailand Colombia Singapore Other Source: UN COMTRADE Page 5 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Markets for soybean & palm oil: closely connected 1.800 y = 1,1013x + 22,465 1.600 R² = 0,8911 1.400 1.200 1.000 800 600 Soybean Oil Prices Soybean (USD/t) 400 200 0 0 200 400 600 800 1.000 1.200 1.400 Palm Oil Prices (USD/t) Source: World Bank, pink sheets (2014), own calculations Page 6 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets 2. Palm oil production system Vorname Nachname Thünen-Institut für XXX PageOrt 7 Dessy Anggraeni, Yelto Zimmer Datum Palm Oil – Economics of the driver of global vegetable oil markets Steps of palm oil production system 1. Seed preparation 2. Nursery (9-12 months) 3. Land Preparation 4. Immature (0-36 months) 5. Harvesting (3-20 years) Page 8 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Pre nursery Page 9 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Main nursery Page 10 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Immature Investment crop establishment app. 10.000 USD/ha Page 11 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Harvesting: Cutting & collecting Fresh Fruit Bunches (FFB) (1) Labor input: 110 hours/ha (or 45 h/ac) (2) Annual raw material production (FFB) : 23 t/ha (3) More or less year-round harvesting Page 12 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets 3. Economics of palm oil production vs. soybeans Vorname Nachname Thünen-Institut für XXX PageOrt 13 Dessy Anggraeni, Yelto Zimmer Datum Palm Oil – Economics of the driver of global vegetable oil markets Challenge to estimate cost of vegetable oil production 1. Both harvested products – fresh fruit bunches and soybeans – are multi-output products. 2. Hence: For a CoP analysis total cost need to be allocated to different outputs. 3. One option: revenue shares. Page 14 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Allocating cost by revenue shares of palm oil Fresh Fruit Bunch ~ 100% Endocarp Mesocarp PKE (Protein, Feed) ~ 2,8% Palm Kernel Oil ~ 2,2% Palm Oil ~ 21,5% 545 USD/t 897 USD/t 857 USD/t Revenue shares: 7% 9 % 84 % Price based on World Bank Commodity Price Annual Average 2013 Page 15 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Allocating cost by revenue shares of soybeans Soybeans 100% Protein meal (feed) ~ 70% Soybean Oil ~ 18% 545 USD/t 1.057 USD/t Revenue shares: 66% 34% Price based on World Bank Commodity Price Annual Average 2013 Page 16 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Specifics of palm oil economics 1. High up front investment in crop establishment (app. 10.000 USD/ha) 2. 20-25 years depreciation for crop establishment investment 3. No revenues in the first 3 years 4. Lock-in effect after investment Page 17 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Vegetable oil yield comparison (t/ha) 6 5 4 3 +/- 4,4 t differences of oil yield 2 1 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 MY1280PHG US700IA Palm Oil Soybean Oil Page 18 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Direct cost (USD/t of oil) 350 300 250 +/- 140 USD/t difference 200 in direct cost 150 100 50 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Palm Oil Soybean Oil MY1280PHG US700IA Seeds Nitrogen Phosphorus Potash Lime Other fertilizer cost Herbicides Fungicides Insecticides Other pesticides (1) Clear advantage for palm oil in seeds and plant protection cost (2) Fertilizer cost on a comparable level Page 19 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Operating cost (USD/t of oil) 300 250 200 +/- 160 USD/t difference 150 in operating cost 100 50 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Palm Oil Soybean Oil Hired labor Family labor Contractor Machinery Diesel (1) Labor cost higher in palm oil than in soybeans (2) But: almost no machinery and diesel cost Page 20 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Total cost: palm oil vs. soybeans oil (USD/t of oil) 1000 900 800 700 600 500 USD / USDt 400 Non-land 300 cost Non-land 200 ~ USD 400 cost 100 ~ USD 200 0 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 MY1280PHG US700IA Palm Oil Soybean Oil non-land cost land cost Annual crop establishment cost (1) Crop establishment cost in palm oil does not matter that much (app. 70 USD/t) (2) Land cost make the difference – 150 vs. 450 USD/t Page 21 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Average raw material cost (Ø 2009-2013; USD/t of oil content) 350 USD/t 200 USD/t (1) Palm oil is a very competitive product. (2) Due to recently bullish commodity markets, land cost in soybeans are very high – when prices go down again land cost will go down as well. Page 22 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Soybean oil is traded at a premium over palm oil 180 160 140 120 100 80 60 40 Premium oil (USD/t) soybean Premium 20 0 Price of palm oil (USD/t) (1) The higher the prices, the higher the premium (2) At 400-600 USD/t (pre-boom price level) premium is at about 60 – 80 USD/t Source: World Bank, pink sheets (2014), own calculations Page 23 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Conclusions (1) Even though soybean oil receives a premium of 60 - 80 USD/t, palm oil is an extremely competitive product. (2) Cost advantages for palm oil in (a) input cost, (b) operating cost – except for labor -, and (c) land cost. (3) High investments in palm oil establishment don‘t matter a lot on an annual and per tonne cost basis. (4) Future directions of global vegetable oil markets will be primarely driven by palm oil. Page 24 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets Knowledge is our Business Thank you for your interest in agri benchmark. Dessy Anggraeni (MA), agri benchmark Cash Crop team Dr. Yelto Zimmer, Head of agri benchmark Cash Crop team Thünen Institute of Farm Economics Bundesallee 50, 38116 Braunschweig Germany phone +49 - 531-596-5155 mobile +49 - 173-5722723 e-mail [email protected] [email protected] internet www.agribenchmark.org www.ti.bund.de Page 25 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets .
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