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Revisiting the palm oil boom in South-East Asia: fuel versus food demand drivers

Author

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  • D. J. Sanders
  • J. V. Balagtas
  • G. Gruere

Abstract

In the past 30 years, palm oil production has increased ninefold, with almost all the growth occurring in Malaysia and Indonesia. This growth has been associated with extensive deforestation, with biofuels often named as the principal driver. However, other drivers have been less examined; in particular, restrictions on genetically modified food in Europe and on trans fats in many developed countries have led food companies to switch to using palm oil in production. This article uses a price analysis to examine the drivers of palm oil production growth during the 1980--2010 boom. Soya bean oil is used in the analysis as the leading vegetable oil, while crude oil represents the energy market; the prices of these oils, along with palm oil, are tested in vector autoregression (VAR) and vector error correction models. The two models consistently find that palm oil prices do not appear to respond to short-run fluctuations in crude oil prices. Rather, they are a function of lagged palm oil prices and current and lagged soya bean oil prices. Overall, the results indicate that while palm and soya bean oil markets have a potentially significant relationship, the crude oil market does not appear to have been an important driver of the palm oil boom.

Suggested Citation

  • D. J. Sanders & J. V. Balagtas & G. Gruere, 2014. "Revisiting the palm oil boom in South-East Asia: fuel versus food demand drivers," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 127-138, January.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:2:p:127-138
    DOI: 10.1080/00036846.2013.835479
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    Cited by:

    1. Halimatussadiah, A. & Nainggolan, D. & Yui, S. & Moeis, F.R. & Siregar, A.A., 2021. "Progressive biodiesel policy in Indonesia: Does the Government's economic proposition hold?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 150(C).
    2. Rini Yayuk Priyati, 2018. "Determinants of Global Palm Oil Demand: A Gravity Approach," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 10(2), pages 148-164, Oktober.
    3. Dennis Bergmann & Declan O’Connor & Andreas Thümmel, 2016. "An analysis of price and volatility transmission in butter, palm oil and crude oil markets," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 4(1), pages 1-23, December.
    4. Romain Menier & Guillaume Bagnarosa & Alexandre Gohin, 2023. "On the dependence structure of European vegetable oil markets," Post-Print hal-04523660, HAL.

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