Oil Palm Industry Economic Journal Vol. 5 (1) March 2005 p. 17-27

Market Potential and Challenges for the Malaysian Palm Oil Industry in Facing Competition from Other Vegetable Oils

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


The market potential for oils and fats remains good into the future considering the increases in population, income as well as per capita consumption especially in countries with currently low income and low consumption. However, the challenges are that most of the oils are inter-substitutable and therefore in competition with each other. Thus, countries impose support measures to gain markets for their products. This paper examines the market potential and challenges of the Malaysian palm oil industry in facing competition from other vegetable oils. There exists a relationship between vegetable oil prices in the longterm and short-term because they are co-integrated. The vector error correction model (VECM) was used to distinguish the long- and shortterm relationships between the vegetable oil price variables. This test determined the oils in close competition with one another as well as established the bi-directional causality between the oils. The former means that two or more oils can influence each other. In general, it was concluded that palm olein is a price leader to certain vegetable oils and the challenge lies in making it the main price leader in the vegetable oils and fats sector. This can be achieved by palm oil producing and exporting countries having their own market intelligence to confer an advantage in preparing better competing strategies.

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