"Central and Eastern Europe has been the main focus for our marketing drive in Europe recently," said Zainuddin Hassan regional manager for the Malaysian Palm Oil Promotion Council in Europe. "In this region there is growing demand for both shortening agents and fats for the bakery and confectionery industries, which in turn is fuelling demand for palm oil. Driving the growth are markets such as Bulgaria, the Czech Republic and, in particular, the Ukraine.
"We are promoting palm oil on the strength that it is a good, healthy alternative to other edible oils and that as a commodity it has benefited from stable pricing in recent years at a time when the pricing of many alternatives has been erratic. This means that food processors will be able to plan their budgets more thoroughly, because palm oil prices are expected to remain stable in the future, too."
Leading Malaysian players in the region are Golden Hope and IOI, two of the country's biggest producers. These companies have been in the region for over ten years now, and are currently both working to increase their processing facility portfolios.
According to Hassan, the fastest growing market for Malaysian palm oil is Ukraine, which now accounts for a sizeable portion of exports to the region. With a market value of €180 million, 500,000 tons of Malaysian palm oil were exported to eastern Europe last year. Of this approximately 100,000 tons went to Ukraine, with the Russian market accounting for 300,000 tons. Comparatively, the western European market currently accounts for 1 million tons per year, but growth there is said to be relatively stagnant.
"The growth of the Ukrainian market is being fuelled by poor sunflower crops which has in turn added a premium to the price of sunflower oil," said Hassan. "In Ukraine sunflower seed oil plays a very important part in the huge edible oil processing industry, so many processors are turning to palm oil as an alternative."
However, in order to sustain further growth in the region, Hassan explained that it will be crucial to establish distribution points. Key to accessing the region will be major ports on both the black sea and, to a lesser degree, ports in the Baltics.
The Malaysian palm oil industry currently accounts for 51 per cent of world production and around 61 per cent to total world exports. In 2002 Malaysia produced a total of 11.9 million tons of palm oil, which represented 6.4 per cent growth over the previous year's figures. In contrast the Indonesian industry produced 8.9 million tons, representing growth of 10.7 per cent, reflecting government efforts to promote the industry by increasing palm plantation. These efforts have centred around clearing huge areas of jungle in Borneo and other less developed regions.
In the longer term, distribution may no longer be the only threat to Malaysian palm oil in the region, as the Indonesia palm oil industry continues to aggressively ramp up production. "Currently Malaysia is the undisputed world leader in palm oil production, however as Indonesia is constantly increasing the size of its plantations I expect that in the course of the next ten years it will take the number one slot. Indonesia has centred its industry on the production of crude palm oil, but that too is set to change as it is also developing processing resources rapidly.
"However, putting this into a global perspective, world demand for edible oils and fats continues to far outstrip supply, so I would imagine that the rise of the Indonesia industry will serve to meet future demands and that the Malaysian industry will continue to sustain moderate growth rates through exports to market such as eastern Europe."