Demystifying Palm Oil in the Era of VUCA & Its Impact on India

Abstract

We humans are born with narrative fallacy as we like to summarize or simplify stuff to reduce the dimension or impact of matters. But history is opaque and hence the fallacy is associated with our vulnerability to over interpretation over actualities. Present economic environment is bit more complex than we seem to realise and it seems we are gliding into kind of syndrome, but not necessarily bad syndrome. This implies that it has periods of calm and stability, with most problems concentrated into small number of unforeseen events. However, the issue is that the unforeseen events have multiplied beyond measurability (geopolitical tension, terrorism, shadow banking, currency vulnerability, etc). Considering the weather-related events which has not changed much but what has changed are its intensity, reoccurrence and socioeconomic consequences of such occurrences. Just to narrate the current threat of El Nino event which is yet to be “confirmed” commands more and more severe economic consequences than it did in the past because of globalization which has created inter-locking fragility. Adding to that we have never lived before under the threat of a global collapse as financial institutions across the globe have been merging into a smaller number of very large banks and almost all banks are now interrelated. So the financial ecosystem is swelling into gigantic, excessively close, bureaucratic banks -- when one sneezes, all other seems to catch cold or rush for blankets (IMF). This paper is in continuation to Economic Tribology presented at Palm Oil Conference (POC March 2014, Kuala Lumpur), wherein it was concluded that we are in the era of VUCA (Volatility, Uncertainty, Complexity & Ambiguity) and it’s here to stay. It tries demystifying the conundrum of VUCA and its impact on Palm Oil by connecting the dots between changing drivers of global growth, weather uncertainty, food v/s fuel, analysing the market structure of edible oil complex (producers and consumers) with especial focus in India and thereafter estimating the price forecasts for Palm Oil along with Crude Oil (conventional fuel) and Currency for Q2 2014.