Journal of Oil Palm Research Vol. 11 No. 2, December 1999, p. 46-56 MOHAMMAD, H A*; MOHD FAUZI, M J*; RAMLI, A**
The presence of excess refining capacity in the refining sub-sector of the Malaysian palm oil industry is one of the challenges facing the industry. Market driven adjustments within the refining sub-sector that have taken place in the last few years (e.g. cessation of refining operations) have incurred significant costs to the industry. These costs would have been avoided if greater supply of crude palm oil (CPO) were made available either through increase in domestic production or imports. However, expansion of domestic production of CPO has been constrained by land and labour shortage. This paper investigates the impact on the industry from the liberalization of imports of CPO from Indonesia. A structural econometric model of the Malaysian palm oil industry will be used to simulate the effect of import liberalization. It is argued that import liberalization not only improves capacity utilization within the refining sub-sector, but also that the higher supply of CPO would help sustain the development of domestic downstream activities in the long run. As palm oil has been identified by the Industrial Master Plan (1985) as one of the resource-based industries to be developed, the simulation results would be useful to palm oil producers, policy makers and investors. However, import liberalization would require a more liberal trading stance to be adopted by both countries. As such, collaborative efforts would be beneficial to both sides given the fact that the market for fats and oils is a growing market.KEYWORDS:
* Faculty of Economics,
Universiti Kebangsaan Malaysia,
43600 UKM Bangi, Selangor, Malaysia.
** Palm Oil Research Institute of Malaysia,
P.O. Box 10620,
50720 Kuala Lumpur, Malaysia.