Economic Impacts of Palm Oil Exports

Palm oil plays an important role in the global economy. While its impacts on exporting countries are obvious, the scale and importance to importing countries are often neglected.

From 2013-14, global imports of palm oil – mostly from Malaysia and Indonesia – amounted to over 52 million tonnes.

Europe Economics was asked by the Malaysian Palm Oil Council to study the scale and the importance of the downstream industries associated with palm oil imports. This is an executive summary of the study.

Palm oil is part of a complex supply chain due to its diverse usage, from edible oil to cleaning products to biodiesel. It is used by both large multinational companies such as Wilmar and IOI, and SMEs in a broad range of sectors.

The top importing countries in 2013-14 were India, China, the Netherlands, Germany and the US. Together, they accounted for 46% of the total palm oil imports by value.

Our key findings are that palm oil imports made a substantial contribution to the world economy, based on 2013-14 figures, including:

• Around US$44 billion of traded palm oil was associated with an indirect contribution to value added in downstream industries of nearly US$17 billion; or an indirect and induced contribution to GDP of nearly US$39 billion. The total is equivalent to the GDP of Kuala Lumpur.
• Palm oil was associated with 1.9 million jobs in downstream industries and 2.9 million jobs including the impact of a resulting rise in demand. The total is just less than twice the population of Kuala Lumpur.

Contribution to economic growth

Source: Europe Economics, July 2016 – The Downstream Economic Impacts of Palm Oil Exports. Note: More data available at: http://theoilpalm.org/palmoileconomics/

Source: Europe Economics, July 2016 – The Downstream Economic Impacts of Palm Oil Exports    

We observed large impacts in larger economies. China ranked the highest in terms of the indirect and induced contribution to GDP and India ranked the highest in terms of the indirect and induced contribution to employment.

This reflects that:

1. Most of the value added comes in the manufacture of final food products and their distribution to final consumers.
2. Money earned by workers and investors is more likely to be spent on goods and services made in the same country.

In addition, employment impacts vary substantially depending on the labour intensity of economic activities.

The sectors where the contribution to GDP was the largest related to the production of food. However, there were also substantial contributions to the wider agriculture sector. Other sectors involved in the supply chain, such as hotels and restaurants, also saw significant additional activity.

While this report does not address the question of what might happen if palm oil imports were to be restricted due to policy change or other exogenous shocks, it does establish the importance of the product in the world economy.

As an affordable and available primary input for a wide range of industries, palm oil is associated with substantial downstream economic activity in many countries around the world.

The results reinforce the conclusion that imports of palm oil are important, on an at least somewhat similar scale, to the importer as well as the exporter.

Andrew Lilico
Executive Director & Principal
Europe Economics, London