Oil Palm Industry Economic Journal Vol. 5 (2) September 2005 p. 47-53

Impact of Commercialization of Biofuel on Prices of Related Commodities

Faizah Shariff; Ayat K Ab Rahman; Mohd Nasir Amiruddin and Yusof Basiron
Received:    Accepted:    Available Online:


This paper examines the use of vegetable oils and sugar for biofuel in selected countries, as a price stabilization mechanism in the EU, USA and Brazil. Two scenarios; one before and the other after the advent of the biofuel programme were analysed for soyabean, rapeseed, sugar and corn prices. Correlations between the price and production of biofuel for the selected vegetable oils were high and showed positive relationship after commercializing of the biofuel. This means that the biofuel programme had improved the prices for the selected vegetable oils. The index from the ARCH and GARCH models were much higher and the linear trend of selected vegetable oil prices showed a downward trend prior to commercialization. However, after their use as biofuel, the index became much lower and the linear trend of selected vegetable oil prices showed an upward trend. This means that, after commercializing the biofuel, prices stabilized and slowly increased. The findings indicate that the biofuel programme can remove excess production to new uses and improve prices. Hence, it can be deduced that removal of palm oil from the market and put to new uses (biofuel) could improve palm oil price. Therefore, it is strongly suggested that Malaysia should commercialize biofuel from palm oil.

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