WORLD PRODUCTION OF PALM OIL

Palm oil, in general, is produced from a perennial crop and is the most reliable in supply. This is
due to the fact that the crop when once planted, it will be in production for 25 years or more.
The oil palm fruit produces two distinct oils, which are palm oil, obtained from the mesocarp and
palm kernel oil, obtained from the kernel or endosperm of the oil palm fruit. Due to the long-life
of the trees, the supply of both products can be easily assured. In comparison, productions of oil
from other perennial crops such as coconut and olive, however, have been fluctuating. On the
other hand, productions from annuals are affected by factors such as uncertain weather
conditions, demand, supply and prices of other substitutes. Their planting intentions can be
altered very fast.
Oil palm has the highest average productivity compared to other major crops. It is the most
efficient producer of oil among the oil crops. It is capable of producing 4,080 kg of palm oil and
456 kg of palm kernel oil giving a total of 4,536 kg of palm oil products per year from a hectare
of land . It is about 10 times more productive than soybean since only 403.3 kg of
soybean oil can be obtained from a hectare of soybean crop.
The preceding paragraphs explain why world palm oil saw a phenomenal increase in production
in the past. From an average of 1.26 million tonnes during 1958 to 1962 period, its production
surged to about 17.9 million tonnes during the period 1996 to 2000 and then to 45 million tonnes
in 2009. This consequently increased its ranking from the 10 th position to a more comfortable
position, second and then first in the ranking of oils and fats production. It
also outperformed soybean oil production since 2005 . While it witnessed a meteoric
rise in production, some animal fats, such as butter, tallow and lard, observed only a mild
increase in production, thus recording a drop in their rankings. Butter dropped to the 7 th place in
the ranking order while tallow and lard fell to fifth and sixth place respectively .

The main contributors of palm oil are Malaysia and Indonesia and their proportions together
constituted about 85% of the world production of palm oil and 23% of the world oils and fats
production. Production from both countries had increased over time; Indonesia increased from
12.38 million tonnes in 2004 to 20.9 million tonnes in 2009, expanding at 11.8% annually while
Malaysia from 13.98 to 17.56 at 6.1% . The faster growth of Indonesia’s land
expansion had allowed the country to overtake Malaysia’s production since 2006 to become the
world’s largest producer of palm oil.

a) MALAYSIAN OIL PALM INDUSTRY
i) Oil Palm Areas
Malaysian total planted area under oil palm in 1960 was only 55,000 hectares (ha) .
Since then, it expanded rapidly under the government‘s agricultural diversification programs to
overcome the country’s economic reliance on rubber and tin. Due to that, the area recorded an
increase to 261,000 ha in 1970, then to almost one million ha in 1980, and to 3.38 million ha in
2000. This expansion reflects the annual growth rate of 10.9% from 1960 to 2000. The rapid
expansion was achieved as a result of the successful conversion of existing rubber plantations
into oil palm estates as well as the opening up of new land areas under the government land
schemes. These oil palm plantations are run mainly under the estates management system and
organized small-holders scheme, through which the industry will be able to utilize resources
properly and economically, and to correctly apply advanced management, planting techniques
and high yielding materials. The country was successful in managing the plantations due to its
experience in rubber industry.

The areas then continued to expand from 3.38 million ha in 2000 to 4.567 million ha in 2009,
giving an annual growth rate of 3.4%. The area appeared to grow at slower annual
growth rates during the millennium compared to the period prior to the millennium. This
indicates that the oil palm industry started to face land constraint in the country presently and it
will be further acute in the future. Oil palm has to compete with other crops for the balance of
agricultural land in the country.
The oil palm areas in Malaysia were owned by four different categories of ownership, namely
smallholders, organized smallholders (FELDA, FELCRA, RISDA), states and private
companies. Among these, the private owners represented the largest proportion and their areas
increased from 2.48 in 2006 to 2.81 million hectares in 2009 . The areas owned by
smallholders also increased from 0.45 to 0.61 million hectares. The areas belonged to organized
smallholders were more or less stagnant during the period.

ii) Oil Palm Yield
Yields of fresh fruit bunch (FFB), CPO and palm kernel (PK) did not show much improvement
. FFB yield declined from 19.6 in 2006 to 19.2 tonnes per hectare in 2009 and CPO
maintained at 3.93 tonnes per hectare during the two years. The decline in the yields led to the
decline in CPO production. In 2009, CPO production declined to 17.56 million tonnes from
17.73 in the previous year. The year 2009 was a stress year for oil palm after over-produced in
2008.

Palm oil is one of the most produced and traded commodities. Compared to other oils and fats, it
has positive and better economic advantages. It is also very versatile and flexible that advanced
technology can increase its areas of applications that lead to wide uses in food or non-food
applications, thus increasing its demand.

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