Lessons Learned from Sustaining Remunerative Palm Oil Prices – The Malaysian Experience


The volatility of the crude palm oil (CPO) prices over the increasing long-term trend in the past has created instability in the earnings for the country and the returns for the industry. The volatility has been caused by the fundamentals – supply and demand factors. Despite this fact, it is important for us to sustain palm oil price at high levels in order to have good returns. It was observed that prior to sustaining high prices, the market was usually bearish with high stock levels. Strategic measures are required to ensure that palm oil stocks are well managed. In this regard, certain measures are undertaken under the stock management programme by the government, including CPO burning as biofuel for power generation, biodiesel usage in the country (called Bx) and replanting programmes which are generally aimed at reducing the stock level in the country. The swift proactive action undertaken by the government should be lauded as it does provide some respite to the palm oil industry with prices firming up and sustained at high levels.


Author :  Mohd Basri Wahid, Ramli Abdullah, Faizah Mohd Shariff, Malaysia Palm Oil Board

A Study on the Perceptions of the Supervised Fertilizer Cluster (KBT) Members in the KBT Programme


The purpose of this study is to gauge the perceptions of the supervised fertilizer cluster (KBT) members on the KBT programme that was launched six years ago by MPOB. A total of 1508 questionnaires were distributed which comprised 64 questionnaires for oil palm millers, 361 for dealers and 1083 for smallholders. To measure the perceptions, respondents were asked to indicate their level of agreement to various statements related to KBT. Their perceptions were gauged using a fivepoint Likert scale and a reliability test was applied using Cronbach’s alpha. To ensure statements were correctly grouped, factor analysis was applied on the responses from the smallholder sector. The millers and dealers perceived that the smallholders supplied quality fresh fruit bunches (FFB), that they had become more knowledgeable, and that they consistently supplied FFB to the mills and the dealers. Nevertheless, the millers and dealers did not perceive any increase in FFB yield and in fertilizer application as a result of the KBT programme. From the smallholders’ perceptions, the KBT programme had increased their knowledge in field management, fertilizer application, diseases control, the FFB pricing mechanism and also in the functions of MPOB. The programme was able to increase FFB yield and their monthly income. The study concluded that the KBT programme had increased the quality of FFB, improved the understanding of the functions of MPOB and had increased technical knowledge. However, the millers and the dealers observed that the KBT programme was unable to cause an increase in the FFB yield produced by the smallholders.


Author : Roslan Abas, Mohd Arif Simeh, Ramli Abdullah and Adzmi Hassan, Malaysian Palm Oil Board


Effective Exchange Rate (EER) Effects on Exports of Oil Palm Products to Selected Markets

The exchange rate is an important economic variable that influences the sale and purchase of agricultural commodities that are internationally and domestically traded. The study explores the relationship of an effective exchange rate for Malaysia and major importing countries on the export volume of various oil palm products. The result indicates evidence of a relationship between the Malaysian exchange rate and the export of crude palm oil, palm kernel expeller and palm-based finished products. Moreover, the relationship also exists for processed palm oil, processed palm kernel oil and oleochemical products to China, and for processed palm oil to India. However, there is no relationship between the exchange rate of European Union and the export of Malaysian oil palm products to that region.


Author :  Ahmad Borhan bin Ahmad Nordin, Malaysian Palm Oil Board


An Analysis of Indonesia’s Palm Oil Position in the World Market: A Two-stage Demand Approach


Indonesia and Malaysia are the major producers of palm oil in the world. Together they contribute almost 87% of the world production in 2007, while in the export market, they contribute 91% of the world palm oil export. This article analyses Indonesia’s palm oil position in the world market. A two-stage demand equation was constructed. The first equation analysed the world demand without considering the source of the product. Meanwhile, the second equation considered the source of the product using the almost ideal demand system (AIDS) approach. Considering the stationarity of the data, the error correction mechanism (ECM) was employed. The result shows that the increase in the world demand for palm oil is mostly contributed by the increase in world income. In addition, palm oil products from Indonesia and Malaysia are complementary to each other rather than competing. Therefore, both countries should co-operate in order to increase the world demand for palm oil in the future.


Author : Amzul Rifin, Department of Agribusiness, Faculty of Economics & Management, Bogor Agricultural University, Indonesia