Abstract
This research specifically analyzed the market integration and transmission of Indonesian palm oil prices in the world vegetable oil market. The analysis using the Threshold Vector Error Correction Model approach was based on time series on the palm oil, soybean oil, rapeseed oil and sunflower oil prices for the period of January 2004 to June 2017. The findings proved the existence of market integration and transmission of asymmetric prices marked by price increases transmitted more quickly among the vegetable oil markets in the long run. The main findings of this research indicated that there was an intense competition between the vegetable oil market and the price of Indonesian palm oil which still followed the rising price of Malaysian palm oil, soybean oil, and rapeseed oil prices, but it was still the leader in the movement of sunflower oil prices. However, the long-term period of soybean oil prices followed a decline in the price of Indonesian palm oil. The results of this research imply that Indonesian palm oil has the opportunity to strengthen its position in the world vegetable oil market by developing futures exchanges that are supported by the adequate physical trading market infrastructure so that it can become the center of formation and reference for world palm oil prices.
Highlights
Palm oil, soybean oil, rapeseed oil, and sunflower oil are the four main types of oil produced and traded in the world market of vegetable oils
The share of the four main vegetable oil production to the total world vegetable oil production increased from 61% in 1991 to 82% in 2016 with the dominance of palm oil by 35%, soybean oil by 25%, and rapeseed oil and sunflower by 22% (Oil World, 2017)
Based on Threshold Vector Error Correction Model (TVECM) estimation results, the relationship between Indonesian and Malaysian palm oil prices shown in Table 3 shows that the error correction term (ECT) coefficient value was significant only in Indonesian palm oil price equation model at regimes 1 and 2. These results indicated that the behavior of Indonesian palm oil prices would respond significantly to imbalances when the amount of deviation (ECT) was below and above certain threshold value
Summary
Soybean oil, rapeseed oil, and sunflower oil are the four main types of oil produced and traded in the world market of vegetable oils. The share of the four main vegetable oil production to the total world vegetable oil production increased from 61% in 1991 to 82% in 2016 with the dominance of palm oil by 35%, soybean oil by 25%, and rapeseed oil and sunflower by 22% (Oil World, 2017). Indonesia and Malaysia have become the largest producers and exporters controlling 90% of the trade in palm oil in the world vegetable oil market (USDA, 2016). The research conducted by Arianto et al (2010) highlighted that the price of palm oil is the price leader in the vegetable oil market complex
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