Fueling Food Production

In recent years, the rapid development of China’s food manufacturing industry has led to growing demand for palm oil. Before September 2006, palm oil consumption ranked third in all vegetable oil varieties in China, after soybean oil and rapeseed oil. However, it now ranks second, next to soybean oil, as the annual consumption of palm oil accounts for more than 25% of the total consumption of vegetable oil in China.

The growing Chinese food manufacturing industry depends mainly on imported palm oil, which has exceeded the import demand of other vegetable oil varieties. China’s current demand for vegetable oil increases by 4-5% and palm oil by 7-8% annually, which exceeds the average growth rate. Between October 2008 and September 2009, China imported 6.12 million tons of palm oil. The import volume is expected to potentially reach 6.5 million tons in this year.

Chart 1: China’s monthly import of palm oil between 2006 and 2010.

China’s palm oil import typically reaches a peak in July, August and September, which is the summer season. It is also a busy food production period. In this period last year, China imported 67, 63 and 74 million tons of palm oil respectively. The highest monthly volume in 2010 is expected to exceed 900,000 tons.

Malaysia and Indonesia are the largest palm oil producing countries in the world (at 86.8%), and they are also the primary exporters of palm oil to China. While Indonesia is the largest global palm oil producer due to its large domestic consumption, Malaysia is the largest palm oil supplier to China.

In 2009, China imported 61% of palm oil from Malaysia and 38% from Indonesia. While palm oil production and supply in these two countries remain relatively stable this year barring adverse factors such as natural disasters, export prices may be affected by other factors such as state policies and tariffs.

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