Custom «Globalization of Palm Oil» Essay Paper

Globalization has advanced the market scope of many commodities around the world of which palm oil cannot be overlooked. This is because o its market value and the quality of palm oil byproducts. Globalization has played a significant role in the spread of palm oil and by products in various parts of the world. This is because considering the fact that palm oil is produced by few countries around the world it has managed to capture a considerable part of the market share and it is also penetrating in markets which initially had rejected or countered its use. The major challenge which has also being considered in this research is the effects of establishing the palm oil plantations due to environmental issues, global warming and deforestation. These challenges need to be addressed from different perspectives to avoid bias considering the advantages and disadvantages of establishing palm oil plantations.

Trade

Palm oil trade came to replace slave trade in West Africa. Ikein, Alamieyeseigha &Azaiki (2008) indicated that this was inline with the emergence of the European Industrial revolution. They continue to say that the slave trade was abolished by the British in 1807. Ikein, Alamieyeseigha & Azaiki (2008) indicated that “by the 18^th century the British who had large plantations in the West Indies and America had created enough capital to launch the industrial revolution and at the same time the need for African slave declined” (p. 24). As a result this was translated into political and economic initiatives one of which was the abolition of the African slave system and therefore this saw the emergence of palm oil trade.

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Ikein, Alamieyeseigha &Azaiki (2008) found out that the palm oil trade signified a new development in the relationship between the Europeans and the delta people. This was a begging of a new era of palm oil trade. The palm oil trade led to the loss of economic and political independence by the people and close integration of the local economy into the capitalist economy due to the emergence of palm oil trade (Ikein, Alamieyeseigha &Azaiki, 2008).

According to Europa Publications (2004) Nigerian Government banned palm oil imports since 1986 which was partially relaxed in 1990 as domestic output was able to satisfy only two thirds of the annual demand of 900,000 metric tons (p. 1382). The book continues to indicate that Nigerian reliance on imports subsequently increased and at the same time increases in domestic production now tend to be used for import substitution rather than to boost exports (Europa Publications, 2004).

Plantations

There are a number of countries in the world which produce palm in large quantities. Europa Publications (2004) says that these countries include Angola, Cameroon, DR Congo, Cote d’ Ivoire, Ghana, Guinea, Nigeria, Sierra Leone in Africa and Colombia, Indonesia, Malaysia and Thailand in South East Asia. Europa Publications (2004) continues to say that in Benin, where the oil palm has traditionally been a staple crop of the national economy oil palm plantations and natural palm groves cover some 450,000 ha. On the same note studies show that in 1997exports of palm oil contributed 0.8% of the countries total export of the country.

Europa Publications (2004) says that Ivory Coast is now Africa principal palm oil exporter and has in some recent years been the fourth largest in the world. Malaysia is by the largest and often accounting for 65% to & 75% of all palm oil trade. This means that Malaysia has very big plantations of palm oil compared to almost all the palm oil producers. Europa Publications (2004) says that “one half of Ivory Coast palms were planted in 1965 to 1970 and therefore they have reached and passed their peak of productivity years” (p. 1382). The scaling down of the planting program was attributed by management and financial difficulties during the 1990s together with the then declining prices for palm oil.

Europa Publications (2004) says that following the revival in prices during the 1997 and 1998 the country had to recourse to imports from Malaysia in order to satisfy domestic demand plans were announced in 1999 to increase capacity to 600,000 he world’s sixth largest exporter of palm oil. Europa Publications (2004) also says that in 2001 Ivory Coast was ranked as the world’s sixth largest exporter of palm oil. On the same note in 1999 a palm oil extraction mill financed by the Netherlands commenced production in various parts of the country (Europa Publications, 2004). In the longer term prospects for palm oil exporters do not appear favorable. According to the publication this is because of technological advances in oil palm cultivation Europa Publications (2004).

In addition, Europa Publications (2004) says that “during September 1996 the import price of Malaysian palm oil in the Netherlands declined from US$572.5 per metric ton to 502.5 per ton”(p. 1382). The price advanced to $585 per ton in February 1997 but fell to 467.5 in July. The publication thus says that the market revived and in late December palm oil traded at $565 per ton. The upward movement continued in the early months of 1998 and in May the import price of palm oil reached $800 per ton (Europa Publications, 2004).

In the year 2004 the European import price of palm oil averaged $436.00 per ton 35% below the previous year’s level. Europa Publications (2004) says that in the previous year level. In 2000 the average European import price of palm oil declined by almost 29% to $310.00 per ton. They continue to indicate that a further decline by was witnessed in the following year were import price of 7.95% to $285.7 per ton occurred.  In 2002 however it was noted that the average European import price of palm oil increased by 37% to $390.3 per ton and the prices continued to rise in 2003.

Chivian & Bernstein (2008) says that “millions of acres of palm oil have been planted in the tropics which are in Asia, Africa, Latin America and Oceania an d many millions  more are being planned for the industrial production of palm oil” (p. 105). Chivian & Bernstein (2008) continue to say that while oil palm can be grown and harvested for local populations as has been demonstrated in many parts of Africa and in some countries in South America problems arise when its industrial scale commercial cultivation requires massive deforestation. They thus say that countries like Malaysia are developing large scale palm oil biodiesel production for export, which is mainly to the European Union where interest in such bio-fuels (Chivian & Bernstein, 2008).

Oil palm is an example f a crop that is often grown in a plantation operated by a commercial company and yields products that bring in overseas currency (Wild, 2003). The growth of oil palm industry in Malaysia is considered to be recent because most o the plantations were established since 1970 (Wild, 2003). He further says that the area of oil palm increased as demand for palm oil increased between 1980 and 1991. Wild (2003) says that “during this period he area increased from 1.02Mha to 2.09Mha in which Malaysia accounted for over half of the world production of edible palm oil” (149).

Wild (2003) says that the oil palm plantations are on land that had been under rain forest or rubber trees. He continues to say that the success of oil palm plantations in Malaysia owes much to the earlier infrastructure and experience from rubber plantations (Wild, 2003). At the same time it has been noted that commercial companies had provided financial investment besides the government building roads and railways and tree selection been undertaken on private estates.

In addition Wild (2003) found out that “plantations of oil palm in the humid tropics are sustainable agricultural systems that provide the country with foreign exchange and workers with income to buy inputs for their farms” (p. 149). In this context Malaysia has been successful in developing the oil palm industry because of government economic policies, established research institutes and its early entry to the international market (Wild, 2003). 

The movement from country to country

Salunkhe (1992) says that oil palm is considered to be native to tropical Africa.  In his studies Springer, 1992 says that there is also an archeological evidence for the production of oil palm as early as 5000 years ago and even of the trade in that commodity in the civilizations of the upper Sudan (218). On the other hand Ensminger (1995) says that the oil palm is indigenous to tropical Asia and or Africa where I grow wild in great numbers. Ensminger (1995) continues to say that from this area it is believed that palm oil spread to most parts of the world. The oil palm is one of the world’s important sources of edible and soap making oil.

Besides the above, Poku &Food and Agriculture Organization of the United Nations (2002) indicated that “it is generally agreed that oil palm originated from in the tropical rain forest region of West Africa” (p.3). Poku &Food and Agriculture Organization of the United Nations (2002) also said that the main belt runs through the southern latitude of Cameroon, Ghana, Liberia, Sierra Leone, Nigeria, and Togo and into the equatorial region of Angola together with Congo. Poku &Food and Agriculture Organization of the United Nations (2002) further indicated that “during the 14thto 17^th centuries some palm fruits were taken to the Americans and from there to the Far East” (p.3).  It was also indicated that the plant appeared to have thrived better in the Far East in countries such as Malaysia hence giving a provision of the largest commercial production of an economic crop far removed from its center of origin (Poku &Food and Agriculture Organization of the United Nations, 2002).

Which countries buy palm oil?

Leonard, Perkins & Cahn (1999) indicated that with regard to import duty palm oil import policy, import duties are decreasing. They found out that in 1994 the import duty on palm oil was reduced from 28% to 20% in most major importers of palm oil. Leonard, Perkins & Cahn (1999) says that “the import duty was further reduced to 9% for crude oil and to 12% for other palm oil products” (p. 28). In terms of export Leonard, Perkins & Cahn (1999) established that “in 1997 Malaysia exported almost 8.5 % of production while in the same period Indonesia exported 52.5% of its total production” (p. 31).

In the year 1997 the major export destinations for palm oil included Pakistan, which bought 1.168 million tones; India with 1.3 million tones; china which bought 1.78 million tones; the European Union buying 2 million tones and West Asia which bought about 1 million tones (Leonard, Perkins & Cahn, 1999). Leonard, Perkins & Cahn (1999) says that “the countries that have maintained large purchases of palm oil include Japan, South Korea, South Africa, Myanmar and Australia. According to their survey the buyers of palm oil include the European Union, East Asia, South Asia and West Asia” (p. 32).

Moreover Leonard, Perkins & Cahn (1999) established that “the emerging markets for potential buyers of palm oil in the recent years include Eastern Europe, the former Soviet Union and some parts of Africa” (p. 32). In their studies Leonard, Perkins & Cahn (1999) indicated that Hungary also posted a high percentage of palm oil import compared to Bulgaria of 49.1 percent. Considering that in the recent years the economies of most countries in Eastern Europe have shown encouraging growth signs which could probably translate to high demands of palm oil as well (Leonard, Perkins & Cahn, 1999). 

In the recent years palm oil has gained wider acceptance in the market. Leonard, Perkins & Cahn (1999) maintained that if in the past palm oil was bought more because of its low price; recent years have witnessed stable palm oil demand despite selling at a premium over competing oils for example soya beans. Leonard, Perkins & Cahn (1999) continue to say that “China and India are two markets that promise further increase in the import or buying of palm oil” (p. 33). The reason behind this projection is due to the fact that in both countries they still exhibit per capita consumption of about 12 kg and 10 kg per person per year in China and India respectively (Leonard, Perkins & Cahn, 1999).

Studies also show that Pakistan and Japan are already reporting pr capita consumption above 22kg per year. Leonard, Perkins & Cahn (1999) says that the “import demand in India is fuelled by private sector buying, which now account for more than 85% of India’s import” (p. 33). On the other hand Leonard, Perkins & Cahn (1999) say that though China has the potential to increase its palm oil import a different situation is experienced in the country because it has a lot of regulatory control on import in the forms of quota and import licensing. 

Who grows it? What type of people grow it

From recent research it shows that most of the palm oil supplied to the market now comes from either Malaysia or Indonesia (Leonard, Perkins & Cahn, 1999). Both the two countries in the year 1997 supplied lose to 87% of the international export trade in palm oil. Leonard, Perkins & Cahn (1999) says that “with the growing demand for palm oil around the world demand for palm oil there is concern whether Malaysia and Indonesia can continue to be the supply source”.

Salunkhe (1992) adds that the world production of palm oil totals about 11,044,000 metric tones and the world production of palm kernel oil totals about 3,468, 186 metric tones. In this context Salunkhe (1992) says that the leading palm oil producing countries by rank are Malaysia, Indonesia, Nigeria, Colombia and Thailand.

What it is used in

Poku &Food and Agriculture Organization of the United Nations (2002) indicated that “palm oil is rich in carotenoids which are pigments found in plants and animals from which it derives its deep color and the major component of its glycerices is the saturated fatty acid palmitic, hence it is a viscous semi-solid even at tropical ambient and a solid fat in temperate climate” (p. 3). They further said that because of its economic value and importance as a high yielding source of edible ad technical oils (Poku &Food and Agriculture Organization of the United Nations, 2002).

There are other additional uses of palm oil. Ensminger (1995) says that palm oil is always reach source of vitamin A, as they contain fro 37,300 to 128,700 mcg of beta-carotene equivalent per 100g. Ensminger (1995) established that “palm oil in the leading producing countries is usually used locally as a food in all kinds of cooker and the export surplus” (p. 794). Further more Ensminger (1995) says that when exported palm oil is used chiefly for soap making and industrial purposes. This is done with suitable treatment and it can also be used in margarine (Ensminger, 1995).  Ensminger (1995) found out that “palm kernel oil which is white or pale yellow is largely used for margarine and also following extraction the oilcake is used as a protein supplement for livestock” (p. 749).

In addition, Salunkhe (1992) says that palm oil is held in the cells of fibrous mesocarp of the fruits and it represents 20-24% of the harvested palm fruit. Salunkhe (1992) thus says that the “mesocarp or pulp of the main fruit has an average oil content of about 56% while on dry basis the mesocarp of the harvested fruit contains 70-75% oil” (p. 225). Salunkhe (1992) adds that palm oil is a rich source of vitamins A and E.   

The environmental effects from the plantations and loss of rainforest

Chivian & Bernstein (2008) says that countries such as Malaysia are developing large scale palm oil biodiesel production for export, mainly to the European Union where interest in such bio fuels. Chivian & Bernstein (2008)  in addition indicated that “when establishing plantations for palm oil the effect is that rain forests are cut down and burned to make way for palm oil plantations” (p. 105). This in turn threatens countless species because of deforestation. Chivian & Bernstein (2008) further says that biodiversity is severely eroded as a result of the high levels of chemical inputs herbicides, and fertilizers which are required by these monoculture trees.

The major concern is the deforestation that has for a long period of time been a consequence of new palm oil plantations in Indonesia and Malaysia. Chivian & Bernstein (2008) said that 80% of the palm oil comes from the wiping out the rainforest homes of Orangutans in these countries where 90% have already been destroyed. Chivian & Bernstein (2008) found out that a further problem with palm oil production in both Malaysia and Indonesia and even in the other countries which produce “considerable amount of palm oil is that draining and burning of large areas of peat land is done in order to establish new plantations” (p.105). This results into enormous and carbon emissions into the atmosphere.

In this context, Chivian & Bernstein (2008) mentioned that research shows that “the burning and draining of peat land in Indonesia for palm oil production currently releases more than two billion tons of carbon into the atmosphere each year therefore catapulting Indonesia into the position of the worlds third leading producer of greenhouse gases” (p. 105). Also Chivian & Bernstein (2008)  argue that “deforestation in Malaysia to enable proliferation of palm oil plantations  ma have played a big role in the outbreak of Nipah virus disease in 1998 causing large numbers of fruits bats carrying the disease to search for food outside the forests spreading the virus to pigs and then to humans” (p. 105).    

World Bank & World Bank Group (2009) says that “the mitigation value of biodiesel derived from palm oil questionable” (p. 148). The behind this is that a detailed life-cycle analysis shows that the net reduction in carbon emissions depends on the land cover existing before the palm oil plantation. Therefore, World Bank & World Bank Group (2009) says that “significant emissions reductions derive from plantations developed on previous grasslands and cropland whereas net emissions will increase greatly if peat land forests are cleared for producing palm oil” (p. 148). 

In conclusion, Leonard, Perkins & Cahn indicated that in a period of about three decades palm oil has come from almost nowhere and emerged as the number one traded oil in the export market (1999). Palm oil now challenges soybean oil as the number one oil in world. But Leonard, Perkins & Cahn (1999) indicated that in order for palm oil to maintain the number one lead in the export market around the globe it has to contend the challenges associated with the environment, pollution and deforestation. Leonard, Perkins & Cahn (1999) continue to conclude that there is a need for palm oil producing countries to diversify its market further to the emerging export destinations such as in Africa and Eastern Europe. Above that due to globalization palm oil will have to continue pressing for admission to difficult markets such as Iran where the potential is also big (Leonard, Perkins & Cahn, 1999). It should be noted that unless palm oil stands its ground it may lose its market share because it is no longer realistic for palm oil to capture market niche only on the basis of its competitive prices but there are other important factors which palm oil should overcome.