Plenary Session 5: Sustainability of Global Palm Oil Supply Chain · 2017. 8. 25. · Netherland China Coefficients Prob. Coefficients Prob. 1 Constant 0.02 0.66 -0.03 0.39 2 Soybean

Presented at International Conference of ICC-ISAE, Sanur, 24 August 2017

Plenary Session – 5:Sustainability of Global Palm Oil

Supply Chain

Diana ChalilUniversity of Sumatera Utara

*[email protected]

mailto:*[email protected]

http://www.csspo.or.id/


21.71

15.20

11.31 7.08

3.66

41.04

India

EU-27

China

Pakistan

Bangladesh

ROW

54.28 36.83

1.49

1.21 1.17 5.02 Indonesia

Malaysia

Guatemala

Benin

Papua NewGuinea

ROW

Who are the main players?

• Exporters • Importers

Source: indexmundi


Global Palm Oil MarketEnvironment Vs Price Issues

• https://www.sustainablepalmoil.org/commodity-brokers-traders/


Damanik and Chalil, 2014

• Quarterly Data

• Period : 2004 - 2013

• Seemingly Unrelated Regression


Integration among Vegetable OilsNo Variable

Netherland China

Coefficients Prob. Coefficients Prob.

1 Constant 0.02 0.66 -0.03 0.39

2 Soybean oil price -0.44 0.34 -0.69 0.14

3 Sunflower oil price -0.03 0.78 -0.05 0.59

4 Radish oil 0.19 0.43 0.19 0.41

5 Palm oil price -0.02 0.95 -0.25 0.33

6Palm oil consumption

0.50 0.00 1.55 0.00

7 GDP 2.56 0.42 0.18 0.00

8 Exchange rate -2.73 0.38 2.68 0.23

9Palm oil import volume(-1)

-0.49 0.00 -0.19 0.01

10 Dummy -0.03 0.60 0.01 0.75


Integration among Palm Oil Markets• Monthly: price

• Quarterly: volume

• Period: 2008-2014

• Exporting Countries: Indonesia and Malaysia

• Importing Countries: Netherlands, Germany, Italy, China, and India

• Seemingly Unrelated Regression


Regressand

Regressor

Indonesia Malaysia India China Jerman Italia Belanda

Konstanta 0.08 -0.07 -0.04 0.17 0.14 0.18 -0.05

Indonesia 0.85*** 0.99*** -1.48*** -0.72*** -0.08 0.31

Malaysia 0.80*** -0.18 1.71*** 0.93*** -0.03 -0.32

India 0.17 -0.05 0.18 0.42*** 0.08 0.45**

China -0.17 0.12 0.07 -0.08 0.10 0.35**

Jerman -0.04 0.12 -0.01 -0.21 0.19 0.03

Italia 0.08 0.02 0.09 0.26 -0.20** 0.19

Belanda -0.02 0.05 0.16*** 0.47 0.35*** 0.22*


Global Demand: Certification

• Global vs Domestic

• Private vs Government

• Acceptance

• What are really matters?• Implementation vs documentation

• Economic vs environment

• General and National context


CSSPO Market Absorption

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

4,452 343,857

1,281,134

2,490,526

3,479,415

4,513,273 5,349,666

6,182,694 5,632,731

163,364

1,357,511

2,773,567

4,798,512

6,724,236

8,735,843

10,998,913

12,130,775 12,062,293

Sales Supply


0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2008 2009 2010 2011 2012 2013 2014 2015 2016

2.73%

25.33%

46.19%

51.90% 51.74% 51.66%48.64%

50.97%

46.70%


Why?

• India and China consumers are likely highly price sensitive.

• 77% share of the total vegetable oil consumption in India

• Due to the competitive price: 90% of the edible oil in India is sold in loss rather than branded form which means no premium is available to be paid as the "branded sustainable palm oil".

• Companies in India have started to obtain RSPO certificates in 2012, but until 2014 their CSPO consumption was still very low (WWF, 2013; Arora et al. 2014).

• Indonesia also uses most of the CPO for edible oil and most of the end consumers would use the certified product only if the prices are the same or lower than those of their current uncertified product (Daemeter, 2015).


Who are the producers/growers

2%

68%

30%

1980

26%

33%

41%

1990

Rakyat Negara Swasta

41%

7%52%

2015


What are the main concerns?

No Types of

Sustainability

Sub Criteria

1 Economics 3.1; 6.10

2 Social2.2; 2.3; 5.3; 6.1; 6.2; 6.3; 6.4; 6.5;

6.7; 6.8; 6.11; 7.5; 7.6

3 Environmental4.1; 4.2; 4.3; 4.4; 4.5; 4.6; 5.1; 5.2;

5.5; 7.1; 7.2; 7.3; 7.4 ; 7.7

Type of Sustainability in the RSPO Sub Criteria


RSPO P&C Adoption

• North Sumatra Case (2012, n= 320)

• Independent• 28.94%

• 1.94 (1-5)

• Schemed• 37.91%

• 2.49 (1-5)



Influencing Factors

Independent

VariablesB Wald Sig. Exp(B) p

Age -.006 .067 .795 .994

Education .043 .327 .567 1.044

Experience* .050 2.818 .093 1.052 0.52

Dependent .077 .378 .539 1.081

Land size .195 1.663 .197 1.216

Income* .193 2.882 .090 1.213 0.59

Group

Participation(1)*-2.078 27.498 .000 .125 0.19

Constant -2.187 2.122 .145 .112


How much smallholders need to pay?

Description Average cost (IDR/ha)

Initial certification and necessarystaffing

20,000 - 40,000

Training of staff and smallholders 1,000 - 25,000

Corrective actions typically 40,000 - 100,000

Ongoing certification andmaintenance

25,000 - 130,000

Total 86,000 - 295,000

Source: WWF, 2012


WTP (2013)

• Riau and Jambi Cases

• n = 142

• Average land size: 2.92 ha

• Binary Logistic Model


WTP Influencing Factors

β S.E. Wald Sig. Exp(β) P

sales continuity 3.31 0.73 20.37 0.00* 27.51 0.96

sales price increase

0.79 0.75 1.09 0.30 2.20 0.69

certainty to get fertilizers

-0.03 0.54 0.00 0.95 0.97 0.49

production increase

-1.41 0.56 6.46 0.01* 0.24 0.20

participation in smallholders’

group 0.34 0.52 0.44 0.51 1.41 0.59

trainings related to oil palm best

practices1.20 0.58 4.28 0.04* 3.31 0.77

* = significant at α = 0.05


β S.E. Wald Sig. Exp(β) P ME

level of education

0.03 0.09 0.09 0.77 1.03 0.51 0.01

age 0.05 0.03 3.22 0.07* 1.05 0.51 0.01

land area -0.09 0.13 0.52 0.47 0.91 0.48 -0.02

period of knowing RSPO

0.55 0.21 6.76 0.01* 1.73 0.63 0.13


Challenge

WTP is still not enough to cover the whole certification costs.

could be improved if smallholders receive higher benefit from the certification


Certification Income Impact (2016)

Statust-stat

Certified Uncertified

South Sumatra

Productivity (ton/ha/year) 13.99 6.55 -8,54*

Selling Price (IDR/kg) 1,466.00 1,474.38 0,35

Production Costs (IDR/ha) 5,103,954.84 1,225,248.86 2,79*

Income (IDR/ha) 15,169,730.00 3,599,232.00 -6,72*

Riau

Productivity (ton/ha/year) 9.32 6.24 -3,77*

Selling Price (IDR/kg) 1,694.06 1,474.38 -4,53*

Production Costs (IDR/ha) 3,453,737.72 1,254,969.61 2,46*

Income (Rp/ha) 12,462,659.70 3,707,731.37 4.05*


Smallholders’ Inclusiveness?

• Trade off between income and management / entrepreneurial ability (POAC)


Alternatives?

• Less Demanding Market: Pakistan Case


Volume of Pakistan’s palm oil import (HS Code 151190)

-

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83

151190_ind 151190_malay


France Case: Indirect Import HS 151190 2010-2015 (Ton)

No Partner country 2010 2011 2012 2013 2014 2015 Average

1 Netherlands 60.35 51.28 65.61 72.39 69.58 68.29 64.58

2 Indonesia 8.83 10.07 8.25 8.16 7.11 11.96 9.06

3 Germany 4.44 6.15 11.05 7.20 7.42 4.90 6.86

4 Italy 7.03 8.86 4.76 4.05 5.11 5.30 5.85

5 Belgium 10.85 14.03 4.86 2.38 0.83 0.94 5.65

6 Malaysia 2.41 4.23 2.31 2.93 7.39 6.43 4.28

7 Spain 4.83 4.01 2.59 2.47 2.02 1.64 2.93

8 UK 1.24 1.27 0.56 0.39 0.43 0.46 0.72

9 Guinea 0.01 - - 0.02 0.05 0.05 0.02

10 Sweden - - 0.00 - 0.02 0.01 0.01

11 Others 0.03 0.10 0.01 0.01 0.03 0.01 0.03


Import Influencing

• Autoregressive Distributed Lag Approach

• Monthly and Quarterly Data

• 2010-2016


Pakistan

Variable Coefficient t-Statistic Prob.*

q_m(-1) 0.35 3.37 0.00

p_m_ind -124.34 -3.95 0.00

p_m_soy 37.27 2.15 0.03

tb 0.06 0.56 0.57

tb(-1) 0.40 3.78 0.00

c 59.02 1.53 0.13

R-squared 0.79

F-statistic 47.82


French

Variable Coefficient Std. Error t-Statistic Prob.*

qm(-1) 0.075 0.270 0.278 0.786

Gdp 0.046 0.027 1.677 0.119

gdp(-1) -0.101 0.024 -4.267 0.001

p_m_ind -15.079 8.016 -1.881 0.084

p_m_ind(-1) -21.518 9.217 -2.335 0.038

p_m_malay 15.068 4.420 3.409 0.005

p_m_net 9.162 5.231 1.751 0.105

p_m_ger 12.342 3.769 3.274 0.007

p_m_gnut 7.304 2.545 2.870 0.014

C 31.734 10.359 3.063 0.010

R-squared 0.834

Adjusted R-squared 0.709

F-statistic 6.690


Indonesia export price

Indonesia smallholder priceIndonesia local mill price

Pakistan import pricePakistan retail price


PakistanSeries Eigenvalue Prob. Lag interval

p_m_ind co_pak& ghee_pak

0.26 0.04 1 to 2

p_cpo_blwn_ind p_m_ind & p_m_malay

0.28 0.01 1 to 2

p_cpo_mill_ind p_cpo_blwn_ind

0.15 0.06 1 to 4

ffb_schp_cpo_mill_ind & p_cpo_blwn_ind

0.19 0.04 1 to 4


France

Price SeriesBounds Test

CointEq(-1)* Prob.F t

p_m_ind - p_m_net 44.89*** -9.58*** -1.18 0.00

p_m_net - p_x_ind 1.13 -1.51 -0.00 0.13

P_m_ind – p_x_ind 1.24 1.59 0.02 0.12

p_m_ind - p_m_ger 33.11*** -8.21*** -0.70 0.00

p_m_ger - p_x_ind 5.18** -3.24** -0.01 0.00

p_x_ind - p_cpo_sumut 7.48*** -3.89 -0.42 0.00

p_cpo_sumut - p_sch_ffb 2.05 -2.04 -0.08 0.05

p_cpo_sumut - p_ind_ffb 3.75 2.76* -0.18 0.00


Sustainable Global Supply Chain

• Long Chain

• Uneven Power

• Market Mechanism vs Government Intervention

Documents

Plenary Session 5: Sustainability of Global Palm Oil Supply Chain · 2017. 8. 25. · Netherland China Coefficients Prob. Coefficients Prob. 1 Constant 0.02 0.66 -0.03 0.39 2 Soybean