UNIVERSITI PUTRA MALAYSIA COMPETITIVENESS OF THE MALAYSIAN AND INDONESIAN PALM OIL EXPORTS CHENG CHOON HUAT FEP

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1 UNIVERSITI PUTRA MALAYSIA COMPETITIVENESS OF THE MALAYSIAN AND INDONESIAN PALM OIL EXPORTS CHENG CHOON HUAT FEP

2 COMPETITIVENESS OF THE MALAYSIAN AND INDONESIAN PALM OIL EXPORTS By CHENG CHOON HUAT Thesis Submitted in Fulfilment of the Requirement for the Degree of Master of Science in the Faculty of Economics and Management Universiti Putra Malaysia February 2001

3 ii Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment of the requirement for the degree of Master of Science. COMPETITIVENESS OF THE MALAYSIAN AND INDONESIAN PALM OIL EXPORTS By CHENG CROON RUAT February 2001 Chairperson: Professor Fatimah Mohd. Arshad, Ph.D. Faculty: Economics and Management Indonesia's emergence in the palm oil trade could pose a strong threat to the current competitive advantage that Malaysia is enjoying as Indonesia has large land resources and an abundant supply of cheap labour. This study intends to evaluate the Malaysian and Indonesian palm oil exports perfonnances in the last two decades and to identify the factors contributing to the competitiveness of the exports. The competitiveness of the Malaysian and Indonesian palm oil exports are measured using economic indicators like Revealed Comparative Advantage (RCA) and Constant Market Share (CMS) analysis; while the potential export markets are ascertained through Shift- Share technique. This study utilises annual data from 1987 to The twelve year period is decomposed into three sub periods with each period contains the four year average. Period I covers , Period II covers and Period III covers for

4 iii RCA and CMS analyses. The Shift-Share calculations involve only two time periods, that are Period I ( ) and Period IT ( ). The results of RCA clearly show that the Malaysian palm oil export still maintains strong comparative advantage. This is mainly due to the low level import of palm oil. However, Malaysia shows a declining trend in Export Performance Ratio throughout the periods of the study due to the declining share in world's palm oil export. In the case of Indonesia, the RCA calculations show an increasing strength of comparative advantage, which is attributed to the increasing palm oil export. CMS results suggest that export gains of palm oil for both countries are mainly attributed to the size of the market effect. Both countries show negative distribution effect, due to the concentration of exports to low growth importing countries. The ems analysis also demonstrates that the competitiveness effect has contributed to the palm oil export growth of Indonesia. On the contrary, Malaysian competitiveness effect is negative between Periods I and II, Periods I and III, which is attributed to the reduction in the Malaysia's share in the world export market. The Shift-Share analysis suggests that the potential markets for palm oil export expansion for the two countries are almost similar, covering China, Pakistan and India. However, Malaysia has a better opportunity to increase her export to the EU countries. From the calculations, the study concludes that Indonesia shows a better competitiveness in the palm oil exports.

5 iv Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai memenuhi keperluan untuk ijazah Master Sains. DA YA SAING MALAYSIA DAN INDONESIA DALAM EKSPORT MINYAK KELAPA SA WIT Oleh CHENG CHOON HUAT Februari 2001 Pengerusi: Fakllllti: Profesor Fatimah Mohd. Arshad, Ph.D. Ekonomi dan Pen gurus an Kehadiran Indonesia dalam perdagangan minyat kelapa sawit boleh mengancam kedudukan Malaysia yang menikmati kelebihan daya saing. Ini adalah kerana Indonesia mempunyai sumber tanah luas dan tenaga buruh yang murah. Kajian ini cuba menilai prestasi eksport minyak kelapa sawit bagi Malaysia dan Indonesia dalam dua dekad yang lepas, dan mengenalpasti faktor yang menyumbang kepada daya saing eksport. Daya saing eksport min yak kelapa sawit bagi Malaysia dan Indonesia dinilai dengan menggunakan petunjuk ekonomi seperti Kelebihan Berbanding Ternyata (KBT) dan Syer Pasaran Malar (SPM); manakala pasaran eksport potensi dikenalpasti melalui teknik Anjakan-Syer. Kajian ini menggunakan data tahunan dari 1987 hingga Tempoh dua belas tahun ini dibahagikan kepada tiga tempoh yang mana setiap tempoh merangkumi purata empat tahun. Tempoh I merangkumi , Tempoh II merangkumi and

6 v Tempoh III merangkumi bagi analisis KBT and SPM. Pengiraan Anjakan-Syer hanya melibatkan dua tempoh sahaja, iaitu Tempoh I ( ) dan Tempoh II ( ). Keputusan bagi KBT dengan nyata menunjukkan eksport minyak kelapa sawit bagi Malaysia masih mempunyai kelebihan daya saing yang kuat. Ini disebabkan temtamanya oleh paras import minyak kelapa sawit yang rendah. Walau bagaimanapun, Malaysia menunjukkan kecenderungan menu run dalam Nisbah Prestasi Eksport sepanjang tempoh kajian disebabkan oleh penurunan dalam syer eksport minyak kelapa sawit dunia. Bagi Indonesia pula, pengiraan KBT menunjukkan kekuatan kelebihan daya saing yang meningkat, yang mana disebabkan o]eh eksport min yak kelapa sawit yang meningkat. Keputusan SPM menunjukkan keuntungan eksport minyak kelapa sawit bagi kedua-dua negara disebabkan terutamanya oleh kesan saiz pasaran. Pasangan negara ini menunjukkan kesan agihan yang negatif, akibat penumpuan eksport ke negara import yang mempunyai pertumbuhan rendah. Analisis SPM juga menunjukkan yang kesan saingan telah menyumbang kepada pertumbuhan eksport min yak kelapa sawit bagi Indonesia. Sebaliknya, kesan saingan bagi Malaysia adalah negatif an tara Tempoh I dan II, Tempoh I dan III disebabkan oleh penurunan syer Malaysia dalam pasaran export dunia. Analisis Anjakan-Syer menggambarkan pasaran minyak kelapa sawit yang berpotensi bagi Malaysia dan Indonesia adalah hampir serupa, merangkumi Cina, Pakistan dan India. Walau bagaimana pun, Malaysia mempunyai peluang yang lebih baik untuk meningkatkan eksportnya ke negara-negara EU. Daripada pengiraan, kajian ini merumuskan bahawa Indonesia lebih berdaya saing dalam eksport minyak kelapa sawit.

7 VI ACKNOWLEDGEMENTS This study would not have been possible without the advice, contribution and moral support of several individuals. First and foremost, I wish to express my gratitude to my supervisory committee: chairperson Professor Dr. Fatimah Mohd. Arshad, for her guidance, suggestions and support throughout the preparation of this thesis. From her, I learnt to be independent and to think analytically. Professor Dr. Mad Nasir Shamsudin who is ever helpful and whose constructive criticisms and suggestions helped in improving this thesis. I would like to take this opportunity to thank them for their financial help in the form of Research Assistantship. I would also like to thank En. Ismail Abdul Latif for his precious advice, guidance and help in the completion of the thesis. My appreciation is also extended to all my friends and coursemates who had rendered their help in one way or another towards the completion of this thesis. I also owe a great deal of appreciation to all the officers and staffs of Universiti Putra Malaysia, Universiti Kebangsaan Malaysia, Universiti Malaya, Library of MPOB and Bank Negara Malaysia during my search for information. Last but not least, my deepest gratitude to my family who has been very suppoltive and understanding throughout my years at Universiti Putra Malaysia. I would like to record my appreciation for their sacrifices and love.

8 vii I certify that an Examination Committee met on 2 February 2001 to conduct the final examination of Cheng Choon Huat on his Master of Science thesis entitled "Competitiveness of the Malaysian and Indonesian Palm Oil Exports" in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Regulations The Committee recommends that the candidate be awarded the relevant degree. Members of the Examination Committee are as follows: MOHAMMED YUSOFF, Ph.D. Professor Faculty of Economics and Management Universiti Putra Malaysia (Chairman) FATIMAH MOHAMED ARSHAD, Ph.D. Professor Faculty of Economics and Management Universiti Putra Malaysia (Member) MAD NASIR SHAMSUDIN, Ph.D. Professor Faculty of Agriculture Universiti Putra Malaysia (Member) ISMAIL ABD. LATIF, M. S. Faculty of Agriculture Universiti Putra Malaysia (Member) ALI MOHA YIDIN, Ph.D. ProfessorlDeputy Dean of Graduate School, Universiti Putra Malaysia Date: 02 APR ZOOl

9 VlII This thesis submitted to the Senate of Universiti Putra Malaysia has been accepted as fulfilment of the requirement for the degree of Master of Science. MOHD. GHAZALI MOHAYIDIN, Ph.D Professor Deputy Dean of Graduate School Universiti Putra Malaysia Date:

10 IX DECLARATION I hereby declare that the thesis is based on my original work except for quotations and citations, which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other degree at UPM or other institutions. Candidate. 1 Name: CHENG CHOON HUAT Date: J.Jl/o 3/ o I

11 x TABLE OF CONTENTS Page ABSTRACT ABSTRAK ACKNOWLEDGEMENTS APPROVAL SHEETS DECLARATION FORM TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS ii iv VI vii ix x xii xiv xv CHAPTER 1 INTRODUCTION 1.1 Background of World Fats and Oils Market World Production, Consumption and Trade of Palm Oil Production Consumption and Import Export 1.2 Background of Malaysian Palm Oil Industry Planted Area Production Exports 1.3 Background of Indonesian Palm Oil Industry Planted Area Production Exports 1.4 Prices 1.5 Problem Statement 1.6 Objectives of the Study 1.7 Significance of the Study 1.8 Organisation of the Study 2 LITERATURE REVIEW 2.1 Definitions and Measurement of Competitiveness Neo-classical Economics Industrial Organisation Economics Strategic Management 2.2 Conceptual Framework for Assessing Competitiveness 2.3 Empirical Evidence Revealed Comparative Advantage Constant Market Share

12 xi Shift-Share Technique 58 3 METHODOLOGY Revealed Comparative Advantage Export Performance Ratio Net ExportlTotal Trade Ratio Constant Market Share Model Specification World Trade Effect Market Distribution Effect Competitiveness Effect 71 Shift-Share Technique Computation Technique Actual Change in Market's Import Total Growth Rate of Market's Import Expected Value of Market's Import Expected Change in Market's Import Net Shift in Market's Import Total Absolute Net Shift Percentage Net Shift in Market's Import Data 3.5 Time Frame Employed 79 4 RESULTS AND DISCUSSION Revealed Comparative Advantage Export Performance Ratio Net Exportffotal Trade Ratio Constant Market Share Shift-Share Analysis 92 5 SUMMARY AND POLICY IMPLICATIONS Summary of Findings Policy Implications Limitation of the Study 101 BffiLIOGRAPHY 102 APPENDICES 109 BIODATA OF AUTHOR

13 XII LIST OF TABLES Tabile Title Page 1.1 Oils and Fats- Production and Consumption, 1994 & 1998 ('000 tonnes) 1.2 Prices of Selected Oils and Fats, (USD/tonne) World Major Producers of Palm Oil, ('000 tonnes) World Major Consumers of Palm Oil, ('000 tonnes) World Major Importers of Palm Oil, ('000 tonnes) World Major Exporters of Palm Oil, ('000 tonnes) Malaysia: Distribution of Oil Palm Planted Area by Category, (hectares) Malaysia: Palm Oil Production and Growth, Malaysia: CPO Production by Category of Holdings, ('000 tonnes) Malaysia: Palm Oil Exports and Growth, Malaysia: Major Palm Oil Export Destinations, (tonnes) Indonesia: Distribution of Oil Palm Planted Area by Category, ('000 hectares) 1.13 Indonesia: Palm Oil Production and Growth, Indonesia: FFB Production by Category of Holdings, ('000 tonnes) 1.15 Indonesia: Palm Oil Exports and Growth, Indonesia: Major Palm Oil Export Destinations, ('000 tonnes) Correlation between Major Oils and Fats Prices 25

14 XIII 4. 1 Malaysia: Export Performance Ratios for Palm Oil between Three Sub-Periods Indonesia: Export Performance Ratios for Palm Oil between Three Sub-Periods Malaysia: Net ExportITotal Trade Ratio for Palm Oil between Three Sub-Periods Indonesia: Net ExportITotal Trade Ratio for Palm Oil between Three Sub-Periods Decomposition of Malaysia's Palm Oil Export GainlLoss between Three Sub-Periods Decomposition of Indonesia's Palm Oil Export GainlLoss between Three Sub-Periods Malaysia: Shift-Share Analysis of Palm Oil Exports between Two Sub-Periods, and Indonesia: Shift-Share Analysis of Palm Oil Exports between Two Sub-Periods, and Al Malaysia and World: Export of Palm Oil, (Tonnes) 110 A2 Malaysia and World: Total Export, (Million USD) 110 A3 Indonesia and World: Export of Palm Oil, (Tonnes) III A4 Indonesia and World: Total Export, (Million USD) 111 A5 Malaysia: Import and Export of Palm Oil, (Tonnes) 112 A6 Indonesia: Import and Export of Palm Oil, (Tonnes) 112 A7 Malaysia's Palm Oil Market Share, , , A8 Indonesia's Palm Oil Market Share, , , A9 Malaysia's Export of Palm Oil by Destination, (Tonnes) 115 A10 Indonesia's Export of Palm Oil by Destination, (Tonnes) 116

15 xiv LIST OF FIGURES Figure Title Page 1.1 Average Prices of Three Groups of Fats and Oils, CUSD/tonne) 1.2 Relationship between Crude Palm Oil and Soybean Oil Prices, (USD/tonne) 3 27

16 xv LIST OF ABBREVIATIONS AFTA ASEAN BIRO CB CIF CIS CMEA CMS CPO CWAD CWRS EEC EU FELCRA FELDA FOB HAD HRS HRVv IAE lit IMF = ASEAN Free Trade Area = Association of South-East Asian Nation = Business Intelligence Report = Caribbean Basin = Cost, Insurance and Freight = Commonwealth of Independent States = Common Market Exporting Association = Constant Market Share = Crude Palm Oil = Canadian Western Amber Durum = Canadian Western Red Spring = European Economic Community = European Union = Federal Land Consolidation and Rehabilitation Authority = Federal Land Development Authority = Free on Board = Hard Amber Durum = Hard Red Spring = Hard Red Winter = Industrially Advanced Economics = Intra-Industry Trade = International Monetary Fund

17 xvi LDC MPOB MPOPC NA] TA NES NW OECD PIR PO CPA RCA RISDA R&D SCP SITe TQM UK UNIDO US USSR WTO XRCA = Less Developed Country = Malaysian Palm Oil Board = Malaysian Palm Oil Promotion Council = North American Free Trade Area = Nucleus Estate Smallholders = North-West = Organisation for Economic Cooperation and Development = Pekebunan Inti Rakyat = Palm Oil Credit Payment Arrangement = Revealed Comparative Advantage = Rubber Industry Smallholders Development Authority = Research and Development = Structure, Conduct and Performance = Standard International Trade Classification = Total Quality Management = United Kingdom = United Nation International Development Organisation = United State of America = Union of Soviet Socialist Republics = World Trade Organisation = Export Index of Revealed Comparative Advantage

18 CHAPTER 1 INTRODUCTION 1.1 Background of World Fats and Oils Market The world production of oils and fats reached million tonnes in 1998 with 3.8% annual growth or a rise of 15.9% compared to 1994's production of million tonnes. Vegetable oils currently accounts for 80% of the world's production of oils and fats, and contributes about 90% of the international trade in this commodity (Oil World, 1999). Worldwide production of soybean in 1998 accounted for 23.5% of the total oils and fats production, while palm oil accounted for 16.3% followed by rapeseed oil (12.0%) and sunflowerseed oil (8.5%) as shown in Table 1.1. Table 1.1: Oils and Fats- Production and Consumption, 1994 & 1998 ('000 tonnes) OilslFats % % Consump- % Consump- % Production Production s h are share tion share tion share Soybean Oil Palm Oil Rapeseed Oil Sunflowerseed Oil Groundnut Oil 18,684 14,156 9,971 7,391 4, , , , , ,517 Cottonseed Oil Other Vegetable 3, , , ,005 Oils 10, , Total Vegetable gj} ,223._.._J 7.2 _... _ _._....?. : ! _..?1.:.!...??? Total Animal Qi!.I.f..: ?Q!.}. _......_. :_s._... 92?2?_._...._._.... Q I I?!???.... : A? Grand Total 88, , Source: Oil World, Oil World ,771 14,656 9,629 7,303 4, ,753 17,353 12,314 8,745 4,507 88, ,

19 2 These four types of oil currently account for more than 75% of the world's vegetable oil production. As indicated in Table 1.1, the world's total oils and fats consumption in 1998 was million tonnes. They were made up of soybean oil (23.1%), palm oil (16.9%), rapeseed oil (12.0%), sunflowerseed oil (8.5%), animal oil and fats (20.0%) and other kinds of oils (19.6%). 1 Table 1.2: Prices of Selected Oils and Fats, aj (USD/tonne) Yt ar High priced oils Medium priced oils Low priced oils Groundnut Coconut Palm Tallow e/ Soybean Palm oil gi Linseed Fish oil il oil hi oil cl kernel oil dl Oil fl Oil hi at Notes: ai For 1999, Jan - May average bl any origin, c.i.f. Rotterdam. cl Philippines, c.i.f. Rotterdam. dl Malay, c.i.f. Rotterdam. el US, bleach, fancy, c.i.f. Rotterdam. fl Dutch, f.o.b. ex-mill. gl crude, c.i.f. N.W. Europe. hi Canada, No. 1, c.i.f. N.W. Europe. ij any origin, c.i.f. N.W. Europe. Source: Oil World, Oil World I Consumption refers to disappearance, calculated as the residual of the balance, i.e. visible opening stocks plus production and imports minus exports and visible ending stocks. Thereafter, the term "consumption" refers to this definition. Animal oils and fats comprise butter, lard fish oil, tallow and grease.

20 3 The prices for oils and fats and their products are determined in the market by the simultaneous interaction of fundamental forces of supply and demand, although nonmarket forces and barriers to trade are also of some importance. There are three distinct groups of fats and oils prices. Firstly, groundnut and lauric oil (coconut and palm kernel oil) are the high priced oils while the tallow, soybean and palm oils are the medium priced ones. Lastly, linseed and marine or fish oils are the cheapest available (Table 1.2 and Figure 1.1) ,, aoo t----r--ir-----s;z::;::;*::::.:::;v-----j =----- _r-._---=:;;;;e..._"""'-----'7""-_\_-! '= ()+-----r T----r--- _r T_ Year High priced oils bl -e- Medium priced oils cl -+- Low priced oils di Figure 1.1: Average Prices of Three Groups of Fats and Oils, at (USD/tonne) Notes: ai For 1999, Jan - May average. bl Average of ground nut, coconut and palm kernel oils. c/ Average oftallow, soybean and palm oils. dl Average of linseed and fish oils. Source: Oil W orid, Oil W orid 2020

21 World Production, Consumption and Trade of Palm Oil Palm oil is one of the major sources of supply in the world market for oils and fats. Palm oil has to compete in a market containing some thirteen principal vegetable oils and oilseeds, two types of marine oils and three categories of animal fats. These oils and fats are used for both edible and non-edible purposes. Palm oil is the second most important oil in the market after soybean oil, and has maintained its contribution of around 16-18% to total world production for the period of 1994 to Production Crude palm oil (CPO) is one of the important commodities in the world trade. According to Oil World 2020, the world production of oil and fats reached million tonnes in Of the amount, 16.3% (16.68 million tonnes) was from the production of palm oil. The palm oil production in 1998 plummeted 6.5% compared to the million tonnes in the year This fall was due to the drought in most part of the world, particularly in Malaysia and Indonesia, the world's biggest producers of palm oil. The top five crude palm oil (CPO) producers (Malaysia, Indonesia, Nigeria Colombia, and Thailand) contributed million tonnes or 88.7% of the world production in 1998 (Table 1.3). Both Malaysia and Indonesia accounted for about 80% of the world production. Hence, both countries are major market players in the world palm 2 Palm oil refers to crude and processed palm oils (not including palm kernel oil). Thereafter, the term "palm oil" refers to this definition.

22 5 oil trade as they influenced the supply and prices of CPO in the international market. The decline in the palm oil production of both countries during 1998 had caused the world production to fall by 6.5 % compared to the previous year. Country Table 1.3: World Major Producers of Palm Oil, ('000 tonnes) 1980 % 1990 % 1995 % 1997 % 1998 % share share share share share Malaysia 2, , , , ,320 Indonesia , , , , Nigeria Colombia Thailand n.a. n.a Cote d'ivoire Rest of World , , , , World 4, , , , , Sources: (i) Oil World, Oil World 2020 (ii) Oil World, Statistics Update, Various Issues (iii) PORLA, PORLA Palm Oil Statistics, various issues (data on Malaysia). Malaysia was the biggest palm oil producer in the world with its CPO production of 8.32 million tonnes in However, her contribution towards the world palm oil production declined from 50.8% to 49.9% between 1997 and Indonesia was the second biggest producer accounting for 30% of the world palm oil production in Indonesia's contribution had shown a significant growth from 15.1 % in 1980 to 30.2% in This data indicates an increasing importance of Indonesia in the world palm oil trade. The palm oil production growth for Indonesia was recorded at 12.0% per year in the last two decades compared to Malaysia, which was 7.8% per year during the same period (Oil World, 1999).

23 6 Production of CPO in Nigeria reached 690,000 tonnes in The country's CPO production growth however is relatively low, i.e. it grew at 3.5% per year between 1979 and 1998 (Oil World, 1999). Nigeria's share of the world production plummeted from 9.4% (1980) to 4.1% (1998). The country's CPO production was utilised for domestic consumption. Similarly, about all of the 370,000 tonnes of CPO produced by Thailand was channelled to domestic consumption. Thailand's contribution to the world production was considered small, i.e. it accounted for about 2.2%. Columbia, which produced 422,000 tonnes of CPO, exported about 17% of its domestic production while the remaining was for domestic consumption Consumption and Import The world consumption of oils and fats reached million tonnes in 1998, of which palm oil accounted for about 16.9%. During the last 20 years, the palm oil consumption growth was registered at 8.4% per year (Oil World, 1999). The consumption level in 1998 was higher than the production, reaching million tonnes compared to million tonnes produced in the same year. In other words, it rose 355.7% compared to the consumption level in which was only 3.81 million tonnes. Palm oil world consumption reached its peak in 1997 with a total of million tonnes. The high level of palm oil consumption was caused by the high demand in the United States and Latin America, which are also the biggest soybean oil producers. The

24 7 relatively cheaper palm oil price compared to the soybean was one of the major factors that encouraged the increase in demand for this product. The mam palm oil consumers are distributed in Asia, Middle East, Western Europe, and ex Soviet Union. As indicated in Table la, Asian countries were the biggest palm oil consumers with five main countries, namely Indonesia, Malaysia, China, India, and Pakistan, consuming around 8.24 million tonnes in 1998 or 47.5% of the world palm oil consumption. Those five countries' consumption in 1980 was 1044 million tonnes or 32.6% of the world palm oil consumption. Table 104: World Major Consumers of Palm Oil, ('000 tonnes) Country 1980 % % % % % share share share share share EU-15IEEC-12 a , , , , Indonesia , , , , India , , China, P.R , , , Pakistan ,167 1, , Malaysia , , Nigeria Rest of World 1, , , , , World 4, , , , , Note: ai EU-15 after Source: Oil World, Oil World European Union (EU- IS) was also the main palm oil market with its commercial centre in Rotterdam, Netherlands. EU- IS's consumption in 1998 was 2.04 million tonnes or 11.7% of the world consumption. Its palm oil import demand was sourced from

25 8 several countries, especially Malaysia and Indonesia. The EU-I5 palm oil import volume reached 2.11 million tonnes in 1998 (Table 1.5). Table 1.5: World Major Importers of Palm Oil, ('000 tonnes) Country 1980 EU-1:5IEEC-12 a1 India China, P.R % % % % % share share share share share , , ,045 )1.5 2, , , , , , , Pakistan ,122 Japan , , Rest of World 2, , , , , World 4, , , , , Note: a/ EU-15 after Source: Oil World, Oil World 2020 The largest palm oil consumer was Indonesia with 2.76 million tonnes consumption in 1998 or approximately 16% of the million tonnes world palm oil consumption. Indonesian palm oil consumption experienced an average growth of 16.3% in the last 20 years (Oil World, 1999). As the second largest palm oil producer in the world, Indonesian palm oil consumption has experienced a significant growth since the 1990s. This was caused by the shift in consumption pattern from coconut to palm oil (BIRO, 2000). The second largest consumer was India with 1.78 million tonnes or 10.3% of total world. palm oil consumption. India's consumption has grown around 18.0% per year in the last 20 years (Oil World, 1999). Most of India's palm oil import was sourced from