Impact of Biodiesel Demand on the Malaysian Palm Oil Market

One of the new elements in the palm oil market is the growing demand for this commodity as a feedstock to biodiesel production. This new development is affecting the dynamics of the market, in particular, the supply and demand sectors of this commodity. The general objective of the study is to investigate the impact of biodiesel demand on the Malaysian palm oil market. The specific objectives are: (i) to develop an econometric model of the Malaysian palm oil market,(ii) to examine the relationship between crude oil and palm oil and eventually to examine the impact of world crude oil prices on Malaysian palm oil market, (iii) to examine the impact of biodiesel demand on Malaysian palm oil market (supply, demand and price) and (iv) to recommend some policy options to ensure the competitiveness of Malaysian biodiesel industry. The study uses econometric modelling involving simultaneous system of nine structural equations and four identities. The estimators of the structural parameters were derived with the two stage least squares (2SLS) method using annual data for the period 1976-2009. The structural relationships were validated with Theil’s inequality coefficients (U-Theil), the root mean squares percentage errors (RMSPE) and turning points. The 2SLS model was used for simulation of counterfactual and scenario analysis. The econometric simulation consists of two parts. The first part consists of counterfactual analysis. A ‘shock’ was injected into the system by indicating two levels of crude oil prices (i.e., 20 percent increase and decrease in crude oil prices; 30 and 60 percent increase in biodiesel demand). The impact of these change on endogenous variables were then estimated. The second part was the ex-ante simulation scenario analysis. The forecast was carried out for the years 2010 to 2015 before the ex-ante simulation exercise. The results of the regression analyses show that relative price between palm oil and natural rubber, interest rate, government development expenditure on agriculture and time trend are important factors affecting palm oil production. The domestic consumption is significantly affected by palm oil price, income, price of soybean oil and lagged domestic consumption. All the variables in the export demand of palm oil for biodiesel equation including palm oil world price, exchange rate, rapeseed oil price, biodiesel importing countries GDP and price of crude oil are statistically significant. Meanwhile, the export of palm oil for non-biodiesel purpose is significantly affected by palm oil world price, exchange rate, soybean oil price, world income and presence of a lagged dependent variable. The palm oil stock, palm oil world price, biodiesel demand and lagged domestic price are the main important variables influencing the domestic price of palm oil. Meanwhile, the world price is affected by soybean price, world income and lagged world price. The coefficient of the world stock variable is negative and it follows the expected sign. This oefficient, however, is not statistically significant. A counterfactual analysis of a sustained 20 percent increase in crude oil prices predicts a direct effect of a 22.94 percent increase in export of palm oil for biodiesel. The indirect effects through the export of palm oil for biodiesel transmission channels are: 11.43 percent decrease in stock, 25.03 percent increase in Malaysian domestic palm oil price, 0.18 percent increase in crude palm oil production, 0.72 percent decrease in domestic consumption and there is also 26.33 percent increase in world price. Meanwhile an ex-ante simulation suggests that the directions are consistent with the theory and counterfactual analysis but the magnitude of changes are smaller. A sustained 30 percent increase in biodiesel demand of counterfactual analysis predicted a direct effect of a 27.94 percent increase in Malaysian domestic palm oil price. The domestic price acted as a transmission channel which results in a 1.18 percent increase in crude palm oil production,0.45 percent decrease in domestic consumption, 0.43 percent increase in stock, 20.77 percent decrease in world price, 2.52 percent increase in export of palm oil for biodiesel and a 12.95 percent increase in imports. An ex-ante simulation suggests that the directions are consistent with the theory and counterfactual analysis but the magnitude of changes are smaller. The econometric simulations suggest that the biodiesel demand does bring positive economic impact on selected sub-sectors of the palm oil industry such as it encourages export, increase domestic price and hence to some extent production. Since the study suggest that production of palm oil as a feedstock to biodiesel in Malaysia increase in response to the biodiesel demand future expansion may be hindered because of land constraint. As an option, Malaysia can invest offshores such as in Indonesia, Papua New Guniea and selected African countries

An econometric analysis of the link between biodiesel demand and Malaysian palm oil market

The objective of this study is to describe the important factors affecting Malaysian palm oil industry especially biodiesel demand. To that end a market model representing palm oil production, import, world excess demand, domestic consumption, export demand, rest of the world excess supply and palm oil prices is formulated.A system of equations of eight structural equations and four identities is estimated by two stage least squares method using annual data for the period 1976-2008.The domestic price equation is formed to investigate the link between biodiesel demand and the Malaysian palm oil market. The domestic price is significantly affected by Malaysian ending stock, world palm oil price, biodiesel demand and lagged domestic price. The elasticity of Malaysian palm oil domestic price with respect to biodiesel demand is then obtained. Results suggest that biodiesel demand has a positive impact on the Malaysian palm oil domestic price. Thus, significant growth in biodiesel demand is important in explaining Malaysian palm oil price determination

The Covid-19 Transmission Channels, new Norms and way Forward

Webinar International with Theme "The Future Strategies Of Estate Crops In The New Normal" in University of Medan Are

Factors Effecting Paddy Productivity in the MADA Regions, Malaysia

Rice commodity is becoming increasingly important for most countries worldwide, particularly those where rice is the main staple meal. This study examines the socioeconomic attributes of farmers, their perspectives on management practises, and the implementation of paddy machinery technology in the four MADA (Muda Agricultural Development Authority) regions in Malaysia. The study aims to determine the main factors effecting paddy productivity in the MADA regions. Primary data was collected from paddy farmers in the four MADA zones using a standardised questionnaire. The data was collected from 673 respondents from four regions of MADA. The analysis employed both descriptive statistics and regression analysis. The results indicate that variables such as land area, selection of paddy planting as the primary occupation, increased time spent on paddy farms, gender, and the educational background of farmers have a significant impact on paddy productivity in the MADA regions. The findings also show that, only a small percentage of respondents (6.2%) followed the crop schedule, and 93.8 percent of them were late. The utilisation of machinery in paddy cultivation achieved the following results: nine farmers achieved a success rate of 85.71 percent, while a majority of farmers (662 farmers) achieved a 71.43 percent utilisation rate, with one farmer earning the lowest usage rate of 57.14 percent. In conclusions the study has found that it is imperative to promote the use of management practises and advanced machinery technologies among paddy farmers to effectively increase productivit

Malaysian Cocoa Market Modeling: A Combination of Econometric and System Dynamics Approach

The Malaysian cocoa sector has undergone dramatic changes during the last few decades. In the early years of 1970s, this sector has maintained an upward trend in the area and consequently the production. However, the trend reversed in the late 1980s due to factors such as declining world prices, higher labour costs, widespread of cocoa pod diseases and the pull of more lucrative crops (in particular palm oil). By 2008 only about 19,976 hectares were planted with cocoa compared to a peak of 414,236 ha in 1989. Production of cocoa beans has trended down accordingly. The study combines the econometric and system dynamics approach in modeling the Malaysian cocoa market. A first order system was developed to capture the interdependencies of the major structural elements of the markets such as production, local and export demands, inventory and imports. Nevertheless, the model provides an understanding of the interrelationships between the system components and allows the simulation of policy variables changes. Future work will involve a detail examination of the interaction cocoa supply chain system (from farm to export) to provide a much more comprehensive representations of the dynamics of the market.Econometric methods; system dynamics; Malaysian cocoa market

Determinants of Demand for Credit: A Conceptual Review

It is generally agreed among the researchers that farm credit has significant positive impact on agricultural production that would increase the farming output. In fact, the rising cereal production were more related to farm inputs that may be acquired through agricultural credit. In view of that, this article synthesizes and reviews different field studies on the determinants of demand for credit. Moreover, it is clear from the reviewed studies that different models have been used in examining the factors that determine the demand for credit. However, most of the findings are inconclusive, due to the contextual, geographical, socio-economic, environmental and other variations across the study areas. Based on that, the paper call the need for more empirical studies on the determinants of demand for credit for a specific region for better policy that may be suitable for that particular region. This has important implications on agricultural production in general and farm credit in particular, especially for developing economies

Effect of Agricultural, Manufacturing And Services Sectors Performance In Nigeria, 1980-2011

The effect of non-oil components export on the economic growth in Nigeria continue to be debated and tested inorder for turning around of the nation’s economic outlook for the future good, by strengthen non-oil exportgrowth and success and also promote a non-oil export culture. This paper extends the previous empirical studieson the issue providing some evidence from time series data period over 1980 – 2011. In this study, the dependentvariables were agricultural, manufacturing and services sector whereas the independent variable is the grossdomestic product (GDP). The model was tested using unit root test, ordinary least square (OLS), serialcorrelation LM test and heteroskedasticity test to analyze the significant contribution between the dependent andindependent variables. The result shows that agricultural and services sector of non-oil export componentcontributed significantly to the economic growth (GDP) of Nigeria. Also the result presents that there is nocorrelation and heteroskedasticity problem. Finally this paper draws some policy implications for the furtherstudies to focus on the non-oil export component in Nigeria so has to ensure a turnaround of the nation’seconomic outlook (growth).Keywords: Non-Oil Export, Gross Domestic Product, Agricultural, Manufacturing and Services Sector