Factor affecting the palm oil boom in Indonesia: a time series analysis

Abstract

Over the past decade, the demand for palm oil has been increasing worldwide. The multi-purpose use combined with a market price below makes palm oil an attractive product. Consequently, a significant change in palm oil industry has taken place. Since 2006, Indonesia has been the biggest producer of palm oil in the world, replacing Malaysia as a chief producer. Thus, the rise of Indonesia palm oil is only a relatively recent phenomenon. This study develops a simple theoretical model that integrates some of the factor that could influence the production of palm oil in Indonesia in order to establish the issue of cointegration and causality patterns. In particular, this analysis examined the relationships among Indonesian palm oil production, soybean oil price, area harvested for palm oil production in Malaysia and palm oil consumption. The finding shows that soybean oil price, area harvested for palm oil production in Malaysia and palm oil consumption positively and significantly affect Indonesian palm oil production. However, the ascent of the Indonesian palm oil industry is the result of a combination of several factors, some of which are relating to the palm oil plant itself, others to policy. Acknowledgement : This research was supported supported by Department of Agricoltural, Food and Environmental Sciences (D3A).