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Knowledge4Policy
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  • Publication | 2023
Palm oil: back to normal
Global Food and Nutrition Security

Palm oil is regaining its position as a relatively cheap oil, alongside its direct competitors, soybean, sunflower, and rapeseed oils. Even with rising labour costs, palm oil production remains the most predictable, abundant, and cheapest. The effects of the war in Ukraine, which in the spring of 2022 took the price of vegetable oils above $1,700 per tonne in one movement, are fading and allowing the market fundamentals to retum. On the one band, there is the predictable and growing supply of palm oil from Malaysian and especially Indonesian plantations, which is increasingly destined for Asia, and on the other, a more unstable and fragmented temperate oil market, which is sensitive to producers' crop rotation decisions and to domestic incentives and other support measures. Support for biodiesel in the United States is a textbook case: it aims to stimulate demand for soybeans produced in the United States without the possibility of substitution by palm oil, thèreby limiting arbitrage and price convergence. After flirting with $1,800 a tonne in March 2022, palm oil ended the year below $1,000, erasing the gains made over the past two years.