According to analysis on the Agrimoney.com website, the palm oil industry is ‘at the dawn of a new period of expansion’, based on increased investment in production by food groups keen to ensure long-term sources of supply. Demand growth for palm oil is currently exceeding supply growth, largely driven by biofuels policies. World stocks are projected to fall to below 8% of global consumption by the end of 2012 ‘for the first time in 40 years’.
There is growing interest in West Africa as a base for palm oil production. At the beginning of December 2011, Agrimoney analysts were talking of a US$6-billion wave of investment in West African palm oil production. In late November, London-based Agriterra announced its acquisition of 45,000 ha of land for plantation production in Sierra Leone to add to its existing investments in the southern area of Sierra Leone.
Since signing an agreement in 2009, Malaysian palm oil giant Sime Darby has developed plans to invest US$3.1 billion over 15 years in palm oil production in Liberia (see Agritrade article ‘ Malaysian group Sime Darby invests in palm oil in Liberia’, 9 August 2011). According to Agrimoney, ‘developing palm oil plantations will be a “critical development path” for West African nations who can use it to alleviate rural poverty and to support downstream processing and manufacturing industries’.
More broadly, the Hightower Report notes ‘palm oil production in Malaysia … dropping off quickly in November from October due to excessive monsoon rains’. This trend is thought likely to continue into 2012. As a consequence, growth of palm oil production is expected to slow in 2012. The report points out that ‘with a 3-year low in ending stocks, the palm oil stocks/usage ratio will be tight’.
In terms of wider oil crop trends, Agrimoney reports a stocks-to-use ratio which leaves ‘virtually no room for supply shortfalls’, with soybean production losing out to maize in the competition for arable land. Goldman Sachs analysts argue that soybean prices ‘will continue to trade at historically low levels relative to corn prices in the near term’, although this situation is expected to change over the course of 2012. A similar analysis emerges from Morgan Stanley, with stock rebuilding in the US seen as supporting soybean prices. Rabobank sees slightly lower floor prices for soybean prices linked to rising production costs in South America and Chinese import demand. Standard Chartered is more optimistic on price developments, with rising prices being cost driven, with soybean demand being ‘structurally robust’.
The annual growth rate for world production of palm oil, currently at about 3%, is markedly lower than in recent years. One reason for this is the limited potential for increasing the area under cultivation, particularly in Malaysia. This also explains the relative attraction of Africa for Asian investors, as world demand for vegetable oils and fats is experiencing sustained growth of about 5% a year. In the last 5 years, investments have been announced in several countries, including Cameroon, Côte d’Ivoire, Ghana, Gabon, Liberia, Nigeria and Sierra Leone. The question remains whether these new projects will enable the development of oil production for domestic/regional markets at a competitive price.
Africa consumes more oil products than it produces. For the WAEMU area alone, the deficit is estimated at 500,000 tonnes a year, which is met from imports. These imports, mainly of palm oil – cheaper than other oils – from Asia, threaten the local oil processing industry, and this is exacerbated by illegal imports. The situation is regularly denounced by the WAEMU region Association of edible oil manufacturers (AIFO), which is calling for restrictions on Asian imports.