Abstract: This study analyzes the export competitiveness of Indonesia’s palm oil product as compared to Malaysia’s in three regions: Asia, Africa and Europe. Two palm oil products are analyzed: Crude Palm Oil (CPO) and refined palm oil. Market share is utilized as the measurement of competitiveness. The results indicate that Indonesia’s palm oil export has increased significantly over the period from 1999-2001 and 2005-2007. The reasons for the increase in Indonesia’s export are the increase in demand and the increase in export competitiveness of Indonesia’s palm oil product compared to Malaysia’s product.c
INTRODUCTION
World palm oil consumption has significantly increased over the years. From 1964 to 2008, consumption has increased an average of 8.7% annually (United States Department of Agriculture, 2009). In 2007/2008, the world consumption of palm oil reached almost 40 million tons and in 2050, it is forecasted to reach 93-256 million tons, depending on the edible oil substitute demand (Corley, 2009).
Meanwhile, in Indonesia, the palm oil industry has grown significantly over the years. By 2007, planted area and production had increased to 23 and 24.5 times their level in 1980. In addition, planted area grew, on average, 11% from 1980 to 2007, while production grew, on average, by 13%. Casson (1999) has argued that this tremendous growth was caused by several factors, especially the efficiency and high yield of the harvest combined with low production cost, a promising domestic and international market and government policy, which supports the development of the palm oil industry.
Seventy percent of the palm oil production in Indonesia is exported. As a result, the export market has played an important role in the growth of the palm oil industry. By 2007, palm oil export had increased to 23.6 times its level in 1980, with average growth of 28% in terms of quantity and 27% in terms of value annually (United Nations, 2009).
The main market destination of Indonesia’s palm oil in 2007 was Asia, with 72.81%, followed by Europe with 18.61% and Africa with 7.17% (United Nations, 2009). Malaysia is the main competitor with Indonesia in terms of palm oil. The objective of this study is to analyze the competitiveness of Indonesia’s palm oil product in the three regions: Asia, Europe and Africa. The change in market share is employed to analyze the competitiveness of Indonesia’s palm oil product. In addition, Malaysia’s change in market share is also calculated to facilitate comparison with Indonesia. In addition to market share calculations, Constant Market Share Analysis (CMSA) is utilized to search for the source of the change in market shares.
Measuring Competitiveness
Siggel (2006) have tried to define competitiveness.
The definition varies depending on which level of approach is taken. For example,
the definition of competitiveness on a country level will be different from
that on the firm level. Additionally, the analysis of competitiveness will be
different depending on the firm level. In this study, competitiveness will be
analyzed on a product basis, with the product as palm oil and on a country level,
with the countries as Indonesia and Malaysia.
After deciding the level of the analysis, the next problem is the method of measuring competitiveness. On a one-product and country level, there are two approaches to measuring competitiveness, the producer approach and market approach. The producer approach measures competitiveness from the producer side using measurements such as price (Durand and Giorno, 1987) and real effective exchange rate (Helleiner, 1991). Meanwhile, for the market approach, one of the most common measurements is market share or the change in market share (Fagerberg, 1988; Krugman and Hatsopoulos, 1987; Mandeng, 1991; Gopal, 1999; Hasan et al., 2001; Jin and Won, 2003; Torok, 2008). In this study, the market approach will be employed in the analysis. Therefore, when a country has a greater market share or experiences an increase in market share, it can be inferred that the country is competitive with regard to the product in a certain period and area.
MATERIALS AND METHODS
Two-step analyses are conducted in this study. The first step is calculating the market share of Indonesia and Malaysia’s palm oil product in several countries in the three regions: Asia, Europe and Africa. Two average time periods are calculated, 1999-2001 and 2005-2007. The second step using the previous market share in the regions, Constant Market Share Analysis (CMSA) is taken in order to analyze the source of growth of palm oil export.
The analysis was applied for the first time in the international trade flow by Tyszynski (1951). The analysis basically decomposed export growth into four components (Richardson, 1971): the market size effect, the market composition effect, the commodity composition effect and the competitive effect.
The market size effect shows that the country’s export growth is caused by the increase in market destination imports. The market size effect results from a shift in world demand. The market composition effect indicates that the country can concentrate on a relatively growing market compared to the world market. The commodity composition effect shows whether a country has concentrated on a commodity whose market is expanding rapidly. Lastly, the competitiveness effect is the residual of the CMSA, which is not explained by the other three effects. It is also assumed that the role of domestic factors of the exporting countries is dominant.
Many studies using the CMSA have employed a multi-product and multi-market focus. Only a few studies have applied the same approach to one product and multiple markets. These studies include Ongsritrakul and Hubbard (1996), Barbaros et al. (2007) and Turkekul et al. (2007). Because only one product is analyzed, only three components are included: market size, market composition and the competitive effect.
The CMSA will be calculated for two palm oil products, Crude Palm Oil (CPO) and refined palm oil. For the purposes of this study, CPO and refined palm oil export in the period from 2005-2007 were analyzed in comparison to those in the base period of 1999-2001, which represents the situation after the economic crisis.
Following Ongsritrakul and Hubbard (1996), the following equation is used:
Where:
| q | = | The quantity of Indonesia’s or Malaysia’s palm oil product export to the region |
| S | = | Indonesia’s or Malaysia’s palm oil product market share of total export to the region |
| Si | = | Indonesia’s or Malaysia’s palm oil product market share of total export to the i-th countries in the region |
| Q | = | The quantity of total palm oil product export to the region |
| Qi | = | The quantity of total palm oil product export to the i-th countries in the region |
The superscripts 0 and 1 refer to the base and subsequent period, respectively.
The equation shows that the changes in the quantity of Indonesia’s or Malaysia’s palm oil product export to the destination markets between the two periods (q1 – q0) can be decomposed into three components on the right hand side of the equation, which represents (1) the size of market effect, (2) market composition effect and (3) competitive effect.
The analysis will be carried out with two commodities: palm oil product commodities, crude palm oil (SITC Rev 3 42221) and refined palm oil (SITC Rev 3 42229). The export data was compiled from the United Nations Commodity Trade Statistics (COMTRADE) Database.
RESULTS AND DISCUSSION
The analysis will focus on three regions: namely, Asia, Europe and Africa. The characteristics of the palm oil market in these three regions are different, thereby, necessitating this classification.
Asia
Asian countries are the largest producer of and market for palm oil product.
Ninety-one percent of palm oil production in 2007/2008 was produced in this
region and 64% of the world consumption came from Asia (United
States Department of Agriculture, 2009). Palm oil production is dominated by two countries, Indonesia
and Malaysia, which contributed 87% of the world’s palm oil production;
meanwhile, the largest consumer of palm oil is China, which consumes 13% of
the world’s palm oil, followed by Indonesia with 11.7% and India with 11.6%
in 2007/2008 (United
States Department of Agriculture, 2009). In terms of trade,
58% of the CPO and refined palm oil goes to Asian countries (United
Nations, 2009).
According to Table 1 and 2, the Asian market is also the fastest growing market. Asia’s imports of CPO increased by 264% in 2005-2007 over 1999-2001; meanwhile, the market for refined palm oil grew by 48%. Looking at individual countries, we see that the fastest growing CPO markets in Asia are Pakistan, Azerbaijan and China, which grew 6083, 2105 and 1564%, respectively. For refined palm oil, the fastest growing markets are Vietnam, United Arab Emirates and China, which grew 258, 249 and 230%, respectively.
There are several reasons for the tremendous growth of the Asian market for CPO and refined palm oil. First, the steady economic growth of Asian countries is supported by a large population. Countries like China, India, Pakistan, Vietnam and others have enjoyed stable economic growth over the years, especially after the Asian financial crisis in 1997-1998. Rifin (2005) indicates that income elasticity for CPO is higher than its price elasticity, which implies that increase in income will cause higher increase in demand for palm oil than will other variables such as price.
| Table 1: | Indonesia’s market share of crude palm oil in Asian countries, 1999-2001 and 2005-2007 (ton) |
| Table 2: | Indonesia’s market share of refined palm oil in Asian countries, 1999-2001 and 2005-2007 (ton) |
In addition, the growing food and oleo-chemical industry contributed to the growing demand for palm oil. In Pakistan, the refinery capacity doubled in 2007 from 2025 tons/day to 4225 tons/day, causing the significant increase in CPO export (Daily Times, 2006).
Secondly, several countries have undergone trade liberalization, which makes the inflow of goods easier and cheaper. India, China and Vietnam are among the countries that have liberalized their trade policies. The government of India imposed a trade liberalization policy in 1994. Before trade liberalization, the vegetable oil importation (including the importation of palm oil) was conducted by the Government State Trading Corporation, with annual import quantities determined by the government. After trade liberalization, import tariffs were imposed (Dohlman et al., 2003; Srinivasan, 2005; Persaud and Landes, 2006). In 2006, China abolished the Tariff Rate Quota (TRQ) for several products, including palm oil (MPOC, 2007a). During the implementation of TRQ, a specified quantity of imports will be imposed at a lower tariff rate; meanwhile, an additional import that is over the quota will be assigned higher tariff rate (Hsu and Tuan, 2001). Vietnam liberalized its trade policies after joining the ASEAN Free Trade Area (AFTA) in 2006, which made the import tariff for palm oil decrease at a maximum level of 5% for products coming from ASEAN countries; the prior level was 10% (MPOC, 2008a).
The third reason is the competitiveness of palm oil compared to other vegetable oils. Palm oil products are less expensive than other vegetable oils, such as soybean oil or sunflower oil. In July 2009, the international price of CPO was US$ 601.95 ton-1; meanwhile, soybean oil is US$ 750.65 ton-1 and sunflower oil is US$ 1021.87 ton-1 (International Monetary Fund, 2009). In addition to competition between imported products, competition between domestically produced edible oil and imported palm oil has also occurred. Table 1 showed that in the Philippines, the largest producer of coconut oil, refined palm imports have increased significantly, by 182%. The main reason for the increase is that the price of coconut price has increased; hence, producers prefer to export the product, leaving the domestic supply to decrease. As a substitute for coconut oil, palm oil is imported because it less expensive than coconut oil (MPOC, 2008b).
Palm oil also has an advantage in terms of transportation cost, especially for Asian countries. The transportation cost of shipping the product to the destination countries is relatively cheaper because the main producers of palm oil are also Asian countries; meanwhile, the main producers of soybean oil and sunflower oil are non-Asian countries.
Fourth, several countries have served as hubs for other countries. Increases in refined palm oil imports by Jordan (at a rate of 136%) occurred because Jordan was serving as a hub for Iraq (MPOC, 2006). The same also applies for the United Arab Emirates. The country served as a major re-export hub, sending the product to neighboring countries, especially the Gulf Cooperation Countries (GCC). Trading between the GCC countries in edible oils and fats (including palm oil) does not entail customs duty, normally a minimum of 5% if the product comes from outside the GCC countries (MPOC, 2008c). For Central Asian countries, Pakistan has served as a hub. Many palm oil products distributed to Afghanistan, Kyrgyzstan, Kazakhstan and other countries came from Pakistan (Palmoilhq, 2009).
Finally, there is the question of operating a joint venture company in the export destination country. Malaysia set up a joint venture company refining CPO. The company, the MAPAK refinery, started operating in 2006 and has contributed to an increase of more than 50% in Malaysian CPO imports (MPOC, 2007b).
The choice of importing CPO or refined palm oil also depends on several factors. First is the availability of refineries. Countries like India, which mostly import CPO, have huge refinery industries that utilize CPO as their input (Srinivasan, 2005). Second is the price difference between CPO and refined palm oil. The buyer will choose the most profitable form to buy, according to whether buying the product in the form of CPO and refining it or buying it in the form of refined palm oil is more lucrative. The third factor is the import duty. Before the AFTA was imposed in Vietnam in 2006, the import duty for importing CPO was only 5%; meanwhile, importing it in the form of refined palm oil meant being charged a 10% import duty. Hence, the buyers would prefer to buy in the form of CPO (MPOC, 2008a).
From Table 1 it also showed that on the country level, it can be noted that Indonesia’s CPO exports to Asian countries have increased by 409%; this change is larger than the increase in imports for Asian countries and therefore, Indonesia’s market share has also increased, from 47 to 66%. Pakistan’s CPO market has the highest growth level for Indonesia’s CPO, with 6150%, followed by Vietnam at 5926% and China at 3358%. According to Table 2, for refined palm oil, Indonesia’s exports to Asian countries increased by 127%, causing Indonesia’s market share to increase from 19 to 30%.
Malaysia mainly focuses on the export of refined palm oil rather than CPO. The government of Malaysia imposed on export tax on CPO in order for the CPO to be refined locally and exported in the form of refined palm oil (Gopal, 1999; Amiruddin, 2003). Table 3 shows that Malaysia’s CPO share of the Asian market has decreased from 49 to 33%, although in terms of quantity, Malaysia’s CPO export has increased by 122%. The largest decrease in market share occurred in India, Saudi Arabia and Jordan. In those three countries, Malaysia’s CPO export also decreased. In Table 4 which discussed the refined palm oil, Malaysia’s export to Asian countries increased by 29% and because the increase was smaller than that of the increase in total imports by Asian countries, Malaysia’s market share decreased from 77 to 67%.
Comparing the changes in market share for the two countries and the two products, one can conclude that Indonesia has gained competitiveness in CPO and refined palm oil in the Asian market. The main reason for the increase in Indonesia’s market share is the price difference between Indonesia and Malaysia’s palm oil product. Asian markets are price-sensitive and a slight difference in price will shift the supplier toward purchasing from other countries. In the case of Indonesia and Malaysia’s palm oil, there exists a price difference of up to US$ 5 ton-1, with Malaysian product priced higher (Subramani, 2005).
| Table 3: | Malaysia’s market share of crude palm oil in Asian countries, 1999-2001 and 2005-2007 (ton) |
| Table 4: | Malaysia’s market share of refined palm oil in Asian countries, 1999-2001 and 2005-2007 (ton) |
The Malaysians realized that suppliers from Indonesia were offering lower prices and thus implemented other strategies. One of the strategies was the signing of trade agreements that would eventually benefit their product performance. The Malaysian government signed a Free Trade Agreement (FTA) with the government of Pakistan in November 2007 that took effect beginning on January 1, 2008. With this agreement, palm oil from Malaysia was to receive a 10% duty discount for the first two years and beginning in January 2010, the discount would increase to 15% (MPOC, 2007b). However, the Indonesians countered the Malaysian strategy by also signing a Preferential Trade Agreement (PTA) with Pakistan, where this agreement was signed in March 2009. The PTA specified that Pakistan agreed to cut 10% of its import duty on Indonesia’s CPO and CPO-based product (Palmoilhq, 2009).
With almost all markets in Asia, Indonesia has a high market share; the only exceptions are Japan and South Korea. In Japan, Indonesia has less than 1% of the refined palm oil market; meanwhile, Malaysia is dominant with almost a 100% market share. The reason for this is that the Japanese buyer still perceives Indonesia as only producing CPO and not refined palm oil. Japan has mainly imported refined palm oil from Malaysia. The other reason is that Japanese tankers carrying palm oil are reluctant to enter Indonesian water because of security concerns.
The Constant Market Share Analysis (CMSA) is conducted to analyze the source of export growth for CPO and refined palm oil in the Asian market. Table 5 showed that for Indonesia, the increase in CPO exports is greater than the increase in refined palm oil exports. For CPO, the increase in demand is responsible for the increase in Indonesia’s exports. Meanwhile, for refined palm oil export, the main source of Indonesia’s exports is the competitive effect. Comparing the two commodities, it can be inferred that Indonesia’s export growth in CPO is caused by the shift in demand, while the increase in refined palm oil export is occurring because Indonesia’s refined palm oil is becoming more competitive in the Asian market. The main reason is that Indonesia palm oil is sold cheaper than that of its main competitor, Malaysia.
On the other hand, in Table 6, the increase in refined palm oil export is greater than the increase in CPO export for Malaysia. This is because Malaysia imposed export taxes on its CPO export in order to supply the domestic refined palm oil industry; which will be then exported.
| Table 5: | Constant market share analysis of Indonesia’s Crude Palm Oil (CPO) and refined palm oil export in Asia, 1999-2001 and 2005-2007 |
| Table 6: | Constant market share analysis of Malaysia’s Crude Palm Oil (CPO) and refined palm oil export in Asia, 1999-2001 and 2005-2007 |
For both CPO and refined palm oil, Malaysia is losing its competitiveness, as shown by the negative sign for the competitive effect. This is mainly caused by the price difference between Malaysia and Indonesia’s palm oil product.
Europe
European countries are the second largest consumer of palm oil after Asian
countries. In 2007/2008, this region consumed 5.6 million tons, representing
14% of the world consumption of palm oil (United States Department
of Agriculture, 2009). The European market is different from the Asian market.
In the Asian market, palm oil is mainly used for making cooking oil; meanwhile
in European countries, palm oil is mainly utilized in the food industry, such
as for making margarine, biscuits, chocolate, snacks, chips and other similar
products; it is also used in the soap, detergent and cosmetics industries (Van
Gelder, 2004).
International traders play an important role in bringing palm oil product to Europe. According to Van Gelder (2004), there are four types of traders involved in palm oil trading in Europe:
| • | European trading subsidiaries of importing countries’ oil palm plantation companies |
| • | Trading arms of the major European edible oil refining companies |
| • | The procurement divisions of major European food, detergent and chemical companies |
| • | Independent edible oil traders and brokers |
According to Table 7 and 8, the European market grew significantly over the period 1999-2001 to 2005-2007. CPO imports grew by 164%, while refined palm oil import grew by 63%. In Table 7, the largest CPO import increase occurred in the Ukraine, with 6442%, followed by Turkey (2665%) and Ireland (1388%). In addition in Table 8, for refined palm oil imports, the largest increase was Sweden with 541%, followed by Romania (469%) and Ukraine (282%).
There are several factors that affect the significant increase in CPO and refined palm oil imports in the European market. First is the increase in demand for biodiesel. The European Union agreed to increase the use of biofuels to a minimum of 2% of total liquid fuel consumption by 2005 and to 5.75% in 2010, although these targets are non-mandatory.
| Table 7: | Indonesia’s market share of crude palm oil in European countries, 1999-2001 and 2005-2007 (ton) |
| Table 8: | Indonesia’s market share of refined palm oil in European countries, 1999-2001 and 2005-2007 (ton) |
In order to meet the targets, about 2.5 million tons of biodiesel (for the 2% target) and then approximately 14 million (for the 5.75% target) needed to be produced (Ahmad and Sue, 2005). In Turkey, the increase in palm oil imports was mainly caused by the increase in palm oil usage in the biodiesel industry. Annually, almost 10,000 to 12,000 tons of palm oil are utilized in the biodiesel industry in Turkey (MPOC, 2007c).
The second factor is the decrease in local vegetable oil production. The main vegetable oil products in European countries are rapeseed oil and sunflower oil. Over the years and in several countries, the production of these local vegetables has decreased for various reasons. In seeking a substitute for the locally produced vegetable oil, consumers found palm oil, which is cheaper and widely used worldwide. The tremendous increase in palm oil imports by the Ukraine has been partially impacted by this factor. The main vegetable oil product in the Ukraine is sunflower oil. Over the years, the production of sunflower oil has shown poor performance, causing the price to increase. In looking for a substitute for sunflower oil, the processing industry has turned to palm oil, which is cheaper than sunflower oil (Foodnavigator.com, 2004).
The third factor is the increasing demand in the food industry. The increasing demand in the food industry has not been followed by an increase in the local production of vegetable oil. Hence, the food industry searched for imported vegetable oil that could be used in the process. Sunflower oil is the main vegetable oil in Russia, but with the growing demand from the food industry, the production of sunflower seeds cannot meet the demand from the food industry. In 2007, palm oil accounted for 54% of total vegetable oil imports. Palm oil products are mostly utilized in making margarine, which is the most important fat in a Russian consumer’s diet and are even used as cooking oil for some segments (MPOC, 2008d).
Lastly, several countries serve as re-export points for other countries. The Netherlands has traditionally served as a hub for the other European countries. Recently, the Ukraine has also taken on this role for other countries, such as Russia and other eastern European countries.
On exporter side, Table 7 indicates that Indonesia’s exports of CPO to European countries have increased by 125%. Despite the export quantity increase, the market share of Indonesia’s CPO has decreased from 38 to 37% because the total import increase is higher than the increase in Indonesia’s exports to European countries. On the other hand, from Table 8 showed that the market share of Indonesia’s refined palm oil in Europe has increased from 18 to 30% and in terms of quantity, exports have increased by 174%.
Indonesia suffered a decrease in CPO market share in several western European countries, such as the Netherlands, Germany, Spain, France and Belgium. According to the Indonesia’s Palm Oil Company Association, the decrease in CPO market share has been mainly caused by the negative campaign initiated by the non-governmental groups (NGOs) in the European countries. In 2005, the government of Indonesia planned to build a palm oil plantation along the border of Indonesia and Malaysia on the island of Borneo, which mainly consists of tropical forest. It was claimed that the opening of the palm oil plantation would destroy 1.8 million ha of tropical forest. After further research, the plan was terminated for a different reason: because the geographic and soil conditions were not suitable for the plantation. Despite this, many people think that the plan was implemented, especially people in European countries (The Jakarta Post, 2009).
The conditions regarding CPO exports have not affected refined palm oil exports. The CPO in Europe is mainly consumed by the western European countries, which are more sensitive to environmental issues; meanwhile, the main consumers for refined palm oil export are the eastern European countries (i.e., Russia), which are less sensitive to environmental issues.
Malaysia has benefited from the decrease in Indonesia’s CPO market share; more specifically, the country has experienced an increase in market share from 17 to 36%. This is shown in Table 9. In terms of quantity, Malaysia’s CPO exports to European countries have increased by 391%. In countries where Indonesia has suffered decrease in market share, Malaysia has increased its market share. This shows that the negative campaign has been effective in these countries and that buyers have shifted their supplier to Malaysia.
| Table 9: | Malaysia’s market share of crude palm oil in European countries, 1999-2001 and 2005-2007 (ton) |
| Table 10: | Malaysia’s market share of refined palm oil in European countries, 1999-2001 and 2005-2007 (ton) |
| Table 11: | Constant market share analysis of Indonesia’s Crude Palm Oil (CPO) and refined palm oil export in Europe, 1999-2001 and 2005-2007 |
Meanwhile according to Table 10, with regard to refined palm oil products, it can be noted that Malaysia’s exports to European countries have increased by 22% but that their market share has decreased from 48 to 36%. This decrease has been caused by the price difference between its product and Indonesia’s refined palm oil, as well as by the aggressive marketing strategy of Indonesia’s palm oil company.
Although Indonesia’s exports to Europe have increased, the CMSA in Table 11 shows that Indonesia’s CPO lost competitiveness in the European market. This is indicated by the negative value for competitive effect, which was caused by the negative campaign initiated by the NGO in Europe. Meanwhile, the increase in Indonesia’s refined palm oil exports is mainly caused by the competitive effect, which contributed 66% of increase in exports.
Malaysia benefited from the loss of competitiveness of Indonesia’s CPO exports in Europe. Table 12 showed that although Malaysia concentrated on refined palm oil exports, CPO exports gained competitiveness. On the other hand, refined palm oil exports lost their competitiveness, although the export quantity increased.
Africa
The palm tree originated in Africa and until the 1960s, African countries
such as Zaire (formerly the Belgian Congo) and Nigeria dominated the palm oil
export industry, before Malaysia and Indonesia took their place. In the 1980s,
the two African countries stopped exporting palm oil (Corley
and Tinker, 2003; Martin, 2006).
| Table 12: | Constant market share analysis of Malaysia’s Crude Palm Oil (CPO) and refined palm oil export in Asia, 1999-2001 and 2005-2007 |
| Table 13: | Indonesia’s market share of crude palm oil in African countries, 1999-2001 and 2005-2007 (ton) |
Corley and Tinker (2003) explain that there are four reasons why Nigeria stopped exporting palm oil. Those reasons are as follows: high population growth, which caused demand to increase; low farm gate prices; traditional plantations and government mismanagement. In 2007/2008, African countries only produced 6.7% of the world’s palm oil (United States Department of Agriculture, 2009). The largest producer of palm oil in Africa is Nigeria, followed by the Ivory Coast and the Congo.
African countries consumed 11.47% of the world’s palm oil in 2007/2008 (United States Department of Agriculture, 2009). Palm oil is mainly used for cooking oil, margarine and soap. In order to fulfill its needs with regard to palm oil consumption, it imports 61.4% of its palm oil (United States Department of Agriculture, 2009).
Table 13 and 14 showed that African countries’ CPO imports grew 114% during the period from 1999-2001 to 2005-2007; meanwhile, refined palm oil imports grew by 151% during the same period. Several countries increased their CPO imports significantly; imports for Morocco grew by 41,012%, while those for Madagascar grew by 25,184% and for Mozambique by 9190%. For refined palm oil imports, the three countries that experienced tremendous growth were Algeria (41,749%), Uganda (3257%) and Tunisia (1709%).
The significant increase in the CPO and refined palm imports in the African countries is caused by several factors. First is the increase in demand from the food industry. In South Africa, the main contribution of the increase in refined palm oil imports is the increase in demand from the food industry. With increases in income, the demand for snacks and ice cream has also increased (MPOC, 2008e).
| Table 14: | Indonesia’s market share of refined palm oil in African countries, 1999-2001 and 2005-2007 (ton) |
Second, trade liberalization has played a crucial role in the increase in several countries’ palm oil imports. Trade liberalization has increased the competitiveness of palm oil as compared to other edible oil but also between CPO compared to refined palm oil which makes CPO more competitive than refined palm oil. In Tunisia, the government eliminated the import duty on CPO, sunflower seed oil and corn oil and also reduced the Value-Added Tax (VAT) on those products from 18 to 6% in 2006 (MPOC, 2008f). In Algeria, the government also reduced the import duty for refined palm oil from 30% to only 2.5% in 2005 (MPOC, 2008g). Meanwhile, in Morocco, the government imposed different import duties on CPO and refined palm oil, causing the installation of new physical refineries that make CPO into refined palm oil. The government imposed a 2.5% import duty on CPO and one of 25% on refined palm oil. As a result, buyers tend to import CPO rather than refined palm oil (MPOC, 2008g). The same is also occurring in Kenya, Tanzania and Uganda. These countries subscribe to the East African Countries (EAC) Customs protocol, which has imposed no tariff on imported raw materials and intermediate goods, including palm oil. The protocol has been in effect since 2005 (Wambura, 2009).
Lastly, several countries serve as a hub for other countries. In Africa, Benin serves as a hub for palm oil to enter other nearby countries, especially countries located in the western part of Africa (MPOC, 2007d).
On the exporter side, which is shown in Table 13, it should be noted that Indonesia’s CPO exports to African countries have increased by 246% and that market share has also increased, from 36 to 58%. Tanzania, Tunisia and Ghana are the countries with the largest increase in imports from Indonesia. These three countries’ import have increased by 30,047, 1,466 and 327%, respectively. In several countries, Indonesia’s market share is relatively small; these countries include Uganda, Niger and Mauritania. Interestingly for Uganda, most of the imports have come from Singapore, which is not a producer of CPO. Singapore just re-exports the CPO that has come from Indonesia or Malaysia.
Meanwhile, Table 14 indicates that Indonesia’s refined palm oil exports have increased by 263% to African countries and its market share has also increased from 27 to 39%. Algeria, Uganda and Egypt are the countries with the largest increase in imports from Indonesia. These three countries have seen imports increase by 289,251, 12,729 and 1,723%, respectively.
According to Table 15, Malaysia’s CPO exports to African countries have suffered a decrease of 25% and its market share has decreased from 37 to only 13%. The largest decrease has occurred in Kenya, Uganda and Algeria, where imports decreased by 99, 98 and 65%, respectively.
| Table 15: | Malaysia’s market share of crude palm oil in African countries, 1999-2001 and 2005-2007 (ton) |
| Table 16: | Malaysia’s market share of refined palm oil in African countries, 1999-2001 and 2005-2007 (ton) |
In Kenya and Uganda, Malaysia lost its competitiveness to Indonesia meanwhile in Uganda, Indonesia’s CPO lost its competitiveness to Singapore.
On the other hand, Table 16 showed that Malaysia’s refined palm exports to African countries have increased by 111%, but the country’s market share has declined from 56 to 47%.
The CMSA result in Table 17 and 18, indicate the source of export growth of CPO and refined palm oil of Indonesia and Malaysia. In Africa, the increase in Indonesia’s refined palm oil export is greater than that of its CPO. In addition, the competitiveness effect is responsible for most of the growth of Indonesia’s CPO and refined palm oil exports. On the other hand, the value of the market composition effect of both CPO and refined palm oil is negative. This shows that Indonesia’s market destination has lower export growth than overall growth.
Malaysia’s exports of CPO to African countries decreased over the period, while refined palm oil exports have increased, although the market share has decreased. In the case of both products, Malaysia has lost its competitiveness to Indonesia and to some extent to Singapore. The increase in exports of refined palm oil has mainly been caused by an increase in demand for the product.
| Table 17: | Constant market share analysis of Indonesia’s Crude Palm Oil (CPO) and refined palm oil export in Africa, 1999-2001 and 2005-2007 |
| Table 18: | Constant market share analysis of Malaysia’s Crude Palm Oil (CPO) and refined palm oil export in Africa, 1999-2001 and 2005-2007 |
CONCLUSION
Indonesia has experienced a significant increase in exports and market share for CPO and refined palm oil in the three regions, except in the case of CPO in European countries. The increase can be explained by the shift in demand and increasing competitiveness. The shift in demand is mainly caused by the stable economic situation and trade liberalization policy imposed by the importing countries, which reduces trade barriers in the form of import duties. The other reason is that Indonesia is gaining competitiveness over Malaysia. The main reason is that palm oil products coming from Indonesia are sold at lower prices than in Malaysia; the aggressive marketing strategy by Indonesia’s exporter company is also a factor.
In the future, Indonesia must penetrate the existing market in which it has a low market share. This includes Japan and South Korea in Asia, eastern European countries, Uganda in Africa and new markets such as United States. In order to penetrate these markets, Indonesia exporters must coordinate their actions. Malaysia has its own agency called the Malaysia Palm Oil Council (MPOC), which promotes Malaysia’s palm oil promotion in several countries. Indonesia might emulate Malaysia’s strategy by setting up such kind of agency that would have representatives in potential market countries. This agency could promote Indonesia’s palm oil and counter campaigns against Indonesia’s palm oil.