The palm oil sector makes a clear contribution to the economies of producer countries – but it also contributes to the economy in importing markets, according to a new report.
The Malaysian Palm Oil Council (MPOC) commissioned an assessment of the palm oil sector’s economic impact in Europe from Europe Economics, a consultancy specialising in the application of economics to business and policy issues. For the first time, it focused on palm oil’s impacts in importing countries, rather than its impacts for producers.
“While the importance of palm oil exports to the Malaysian economy is obvious, it is much easier for the importance of palm oil imports to the European economy, diffused across all the Member States; a wide range of industrial sectors; and both large firms and a multitude of SMEs, to be ignored,” the report said.
The European Union imported nearly €5.4bn worth of palm oil in 2012, the majority for food use, but also for household goods, biodiesel, and health and beauty products.
According to the report, these imports made an indirect contribution to GDP of €2.7bn, and an indirect contribution of €1.2bn in tax revenue. In addition, imports led to an indirect contribution to employment of 67,000 jobs. When also taking into account induced effects resulting from increased demand, the estimated contribution to GDP was €5.8bn, €2.6bn to tax revenue, and 117,000 jobs.
“Direct effects occur in those sectors where consumption increases,” the report explained. “Indirect effects occur as other sectors adjust to increased demand for intermediate inputs. Induced effects arise as the higher output boosts earnings for the various factors of production in the sectors affected and the additional earnings are then spent.”
While the largest volume of palm oil imports was to the Netherlands (more than €1.2bn-worth), the largest contributions to GDP were in the larger member states, including Italy, Spain, Germany, France and the UK.
The authors acknowledged that they had not assessed what could happen to economic activity in the absence of palm oil.
“That would depend on the availability of other means of supplying final demand and how any resulting increases in price might be passed on,” they wrote.
Palm oil is the cheapest oil to produce, and according to oils analyst ISTA Mielke, palm significantly outperforms other oils in terms of average global yield. In 2010, palm produced 3.67 tonnes per hectare, compared to 0.78 tonnes for rapeseed, 0.56 tonnes for sunflower and 0.47 tonnes for soybean oil.
The report added that more than seven workers were employed in the downstream supply chain for every thousand tonnes of palm oil imported into Europe, or “around thirteen workers including the resulting increased demand”.