Asian palm oil: limited supply

The supply of land for palm oil plantations is not far from decreasing. With the 25-year lifecycle of the oil palm, top producers Malaysia and Indonesia have been running out of land to accommodate the demand for the said oil. According to analyst Ken Arieff Wong, at present there are only nine years left before such lands completely vanished. In particular, Malaysia could run out of land by 2020 while Indonesia by 2022. This shortage is brought about by the implementation of stricter policies on land expansion, which resulted from efforts to stop converting forests into palm oil plantations and the call to preserve the natural habitats of some endangered species. Because of all these, palm oil giants Sime Darby, Olam International, and Wilmar International are scouting for other lands they can utilize in equatorial Africa. This is most likely what the giants will turn to in order to expand their land banks even if chances of political and social instability are quite high in the said region. As a result of the deficiency, prices will definitely shoot up since the demand is greater than the supply.

Because of this situation, palm oil companies have since been enjoying steady growth with Indonesia’s biggest producer Golden Agri-Resources listing 147 percent increase in net profit. This surge in revenue came in despite boycott from big companies such as Unilever, Nestle, and Kraft Foods. Similarly, world’s biggest listed palm oil producer Sime Darby revealed a 104 percent increase in second-quarter profit. All these have been brought about by the great demand for edible oils. Thus, as the deadline for Southeast Asian lands comes near, the need to turn to other lands where palm tree will grow is apparent for these companies. Hence, it has been reported that Sime Darby has acquired 300,000 ha in Cameroon and 220,000 ha in Liberia. Other palm oil companies have also obtained their respective shares in other parts of Africa.

Source: http://blogs.ft.com/beyond-brics/2011/04/18/asian-palm-oil-limited-supply/