Econometric study on Malaysia's palm oil position in the world market to 2035

Malaysia is currently the world's second largest producer of palm oil. With its large and growing palm oil industry, combined with a strong global demand for palm oil, Malaysia has the potential to play a major role in the world food and biofuel markets. As a result of environmental concerns and reservations concerning the net effect of deforestation in some countries such as Indonesia, a restricted expansion of palm oil plantation area has been analyzed. This paper aims to perform a quantitative analysis on (1) the domestic supply and demand outlook for Malaysia's palm oil, including biodiesel demand and (2) its ability to supply the global markets by 2035, in the context of restricted plantation area. Domestic palm oil production is projected to rise by about 50% to 26.6 million tons in 2035. Domestic demand of palm oil for food consumption, industrial non-food uses and biodiesel is anticipated to increase by more than 200% to 1.4 million tons in 2035, up from 0.4 million tons in 2009. Domestic demand, however, amounts to only a very small portion (5%) of total palm oil production in 2035, with an expected exportable surplus of over 25 million tons. With such surplus capacity, Malaysia will become a formidable competitor in the world vegetable oil and biofuel markets. (C) 2014 Elsevier Ltd. All rights reserved.