Page 0 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
agri benchmark Global Forum Des Moines, 21st August 2014
Economics of the driver of global vegetable oil markets
Palm Oil -
Dessy Anggraeni, Yelto Zimmer
Thünen-Institut of Farm Economics
Page 1 Dessy Anggraeni, Yelto Zimmer Palm Oil – 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 2 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 3 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Ort Datum
Vorname Nachname Thünen-Institut für XXX
1. Overview of global vegetable oil markets
Page 4 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Breakdown of vegetable oil production (2002 vs. 2012)
Palm Oil 32%
Soybean Oil
26%
Rapeseed Oil
15%
Other Oil 27%
Source: FAOSTAT
2002 2012
Palm Oil 27%
Soybean Oil
30%
Rapeseed Oil
13%
Other Oil 30%
Palm oil in a fast growing market outperforms all other vegetable oils
Page 5 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Main palm oil exporters (2008 – 2012)
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
2008 2009 2010 2011 2012
in 1
00
0 t
on
s
Indonesia Malaysia Thailand Colombia Singapore Other
Source: UN COMTRADE
Page 6 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Markets for soybean & palm oil: closely connected
y = 1,1013x + 22,465 R² = 0,8911
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
0 200 400 600 800 1.000 1.200 1.400
Soyb
ean
Oil
Pri
ces
(USD
/t)
Palm Oil Prices (USD/t)
Source: World Bank, pink sheets (2014), own calculations
Page 7 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Ort Datum
Vorname Nachname Thünen-Institut für XXX
2. Palm oil production system
Page 8 Dessy Anggraeni, Yelto Zimmer 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 9 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Pre nursery
Page 10 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Main nursery
Page 11 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 12 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 13 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Ort Datum
Vorname Nachname Thünen-Institut für XXX
3. Economics of palm oil production vs. soybeans
Page 14 Dessy Anggraeni, Yelto Zimmer 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 15 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%
Mesocarp Endocarp
Palm Oil ~ 21,5% PKE (Protein, Feed) ~ 2,8% Palm Kernel Oil ~ 2,2%
545 USD/t
7%
897 USD/t
9 %
857 USD/t
84 %
Revenue shares: 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
Allocating cost by revenue shares of soybeans
Soybeans 100%
Protein meal (feed) ~ 70% Soybean Oil ~ 18%
545 USD/t 66%
1.057 USD/t 34%
Price based on World Bank Commodity Price Annual Average 2013
Revenue shares:
Page 17 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 18 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
0
1
2
3
4
5
6
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
MY1280PHG US700IA
Palm Oil Soybean Oil
Vegetable oil yield comparison (t/ha)
+/- 4,4 t differences of oil yield
Page 19 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Palm Oil Soybean Oil
Seeds Nitrogen Phosphorus Potash Lime
Other fertilizer cost Herbicides Fungicides Insecticides Other pesticides
Direct cost (USD/t of oil)
+/- 140 USD/t difference in direct cost
(1) Clear advantage for palm oil in seeds and plant protection cost (2) Fertilizer cost on a comparable level
US700IA MY1280PHG
Page 20 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
0
50
100
150
200
250
300
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Palm Oil Soybean Oil
Hired labor Family labor Contractor Machinery Diesel
Operating cost (USD/t of oil)
+/- 160 USD/t difference in operating cost
(1) Labor cost higher in palm oil than in soybeans (2) But: almost no machinery and diesel cost
Page 21 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
0
100
200
300
400
500
600
700
800
900
1000
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
MY1280PHG US700IA
Palm Oil Soybean Oil
USD
/ t
non-land cost land cost Annual crop establishment cost
Total cost: palm oil vs. soybeans oil (USD/t of oil)
Non-land cost ~ USD 400 Non-land
cost ~ USD 200
(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 22 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)
(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.
350 USD/t
200 USD/t
Page 23 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
0
20
40
60
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Pre
miu
m s
oyb
ean
oil
(USD
/t)
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 24 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 25 Dessy Anggraeni, Yelto Zimmer Palm Oil – Economics of the driver of global vegetable oil markets
Knowledge is our Business
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
Thank you for your interest in agri benchmark.
Dessy Anggraeni (MA), agri benchmark Cash Crop team