Analysis: Asian farmers plant to boost palm oil output, seedling shortage slows pace

Godrej Agrovet

19/09/2022 24:00

* Key producers hasten replanting after COVID disruption
    * India, Myanmar, Thailand try to expand oil palm area
    * Sudden surge in demand creates sprouts, seedlings scarcity
    * Seedling shortage could limit production, support prices

    By Rajendra Jadhav, Mei Mei Chu and Bernadette Christina
    MUMBAI/KUALA LUMPUR/JAKARTA, Sept 19 (Reuters) - Farmers
across Asia are busy planting trees to boost palm oil production
but nurseries are struggling to keep up with demand for sprouts
and seedlings, risking a delay in the industry's recovery from
the COVID-19 pandemic.
     The seedlings shortfall could slow plantation, capping
production growth and keeping palm oil prices  FCPOc3  elevated,
industry officials said, as the world already grapples with
lofty inflation. Asia produces more than 90% of the world's
cheapest edible oil used in cooking, baking and cosmetics.
    The production growth of palm oil stalled in recent years,
partly due to labour shortages during the COVID-19 pandemic, but
farmers are now looking to replant or expand plantations amid
rising prices.
    The demand surge comes as supply for germinated sprouts,
used to make seedlings, has fallen as oil palm nurseries scaled
down production during the pandemic to adjust to weaker demand.
    Traditional growers Indonesia and Malaysia, which account
for more than 80% of the global palm oil output, are focusing on
replacing old oil palm trees that are cumbersome to harvest and
less productive, while India and Thailand are trying to expand
acreage, industry officials said. 
    "A number of big Malaysian estates (have decided) they want
to replant, causing a shortage of availability of seedlings in
the market," said Tan Kim Tun, a Malaysian nursery operator
based in the state of Johor.
    Global annual palm oil production growth slowed to 0.5%
between 2018 and 2022 from a 4.8% pace in the previous four
years, according to data compiled by the U.S. Department of
Agriculture.   
    
    Against this backdrop, palm oil prices hit a record high of
7,268 Malaysian ringgit ($1,606.19) per tonne this year and
remain above the average seen in 2010-2020 despite a big
downward correction recently.
    New plants take four years to grow before harvest, meaning
production will stay tepid and prices high for a while yet, said
a New-Delhi based dealer with a global trading firm.
    "As the productive trees are chopped, production growth will
remain negligible for a few years," said the dealer. "Replanting
will support palm oil prices for the next few years."
    
    SEED SHORTAGE
    Oil palm nurseries will struggle to ramp up output overnight
to meet strong demand as it takes more than a year to make a
seedling.
    "We can increase our capacity but it will take time... it
will at least take one year before you can get (a) germinated
seed. The shortage cannot be resolved fast," said Ahmad Parveez
Ghulam Kadir, director-general of Malaysian Palm Oil Board
(MPOB).
    Industry officials estimate Malaysia has the capacity to
produce up to 80 million germinated sprouts a year and Indonesia
200 million sprouts.
    Indonesia, however, can currently only produce half of that
amount, or 110 million per year, said Hasril Hasan Siregar, head
of research and productivity improvement at Indonesian Palm Oil
Association (GAPKI).
    Meanwhile, Indonesia uses around 95% of the seedlings it
produces to meet domestic demand and exports only around 5%,
Siregar said, forcing importers such as India and Myanmar to
rely on Malaysia and Thailand.
    Indeed, demand for Malaysia's germinated seeds surged 30% in
Jan-Aug 2022 period from a year ago to nearly 38 million seeds,
according to data compiled by the MPOB. For Indonesia's sprouts,
demand jumped nearly 24% over the same period.
    Demand for Malaysia's germinated seeds is so high, that some
nurseries are having to reject orders, said Tan, adding that his
nursery has a waiting list of around 6 months.
    All of this is causing problems for India, which is aiming
to rapidly expand its oil palm area.  urn:newsml:reuters.com:*:nL1N2Z7089
    "The world needs more and more palm oil. For many poor
consumers, it's the only option," said a Mumbai-based dealer
with a global trading firm. The dealers declined to be named
because of company policy.
    India needs 20 million sprouts in 2022 but only 75% of that
demand has been met by imports from Indonesia, Malaysia,
Thailand and Costa Rica so far this year, said an official with
TS Oilfed, India's biggest importer of oil palm sprouts, who
declined to be named because of company policy.
    
($1 = 4.5250 ringgit)

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Rising price of palm oil Rising price of palm oil    https://tmsnrt.rs/3PXccQ3
Global palm oil production    https://tmsnrt.rs/384rDVV
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Rajendra Jadhav, Mei Mei Chu and Bernadette
Christina; Editing by Florence Tan and Ana Nicolaci da Costa)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-68414378 ; Reuters
Messaging: rajendra.jadhav.thomsonreuters.com@reuters.net))