The palm oil export industry of Malaysia : a study of performance and prospects

Abstract

One of the main objectives of this study is to evaluate the performance of the palm oil export industry in Malaysia. However, before delving directly into the aspects of quantitative assessment, it was necessary to trace the development of the oil palm industry and highlight its importance in the Malaysian economic scene. It was found that the industry had achieved remarkable progress as a result of investments from both the private and public sector. Public sector investments took the form of land development schemes administered directly by State Governments or by autonomous organizations such as FELDA (Federal Land Development Authority). The performance of the industry, with specific reference to growth, was analysed using the constant market-share approach. The major conclusion that could be derived from this analysis is that Malaysia had benefitted from a favourable market distribution of her exports. Variability of export earnings of palm oil sales was considerable during the 1954-1972 period. However, there was a significant reduction in this variability over the more recent period from 1963 to 1972. The major source of export earning variability was the variation in export volume. Furthermore, it was found that there was a reinforcing interaction effect resulting from changes in export quantity and price. The implication that could be drawn is that Malaysia had been able to expand her exports of palm oil to meet the existing unsatisfied demand without depressing the price levels. The second objective is to estimate the demand relationships for Malaysian palm oil exports. It was established for certain countries (e.g., UK and USA) that demand was responsive to changes in price and price of substitutes. In others (e.g., Japan and Iraq), price variables did not provide adequate explanation. On the whole, demand for palm oil exports could be said to be responsive to the changes in the levels of income or economic activity. Another important task of this study is to examine the future prospects for palm oil exports. Export supply and demand were projected to 1980. The projection estimates indicate the possibility of supply exceeding demand. A likely consequence of this would be a reduction in price of palm oil. This study, thus, cautions against ambitious expansion of oil palm planting in the future. It is also suggested that there is a need to seek new market outlets to cater for the increasing supply in view of the limited absorption capacity in traditional markets. Show more