Study Notes
Price Volatility - Palm Oil Production and Prices
- Level:
- AS, A-Level
- Board:
- AQA, Edexcel, OCR, IB
Last updated 22 Mar 2021
Palm oil is an edible oil used in thousands of products from cooking oil to snacks, lipsticks and transport fuels.
![](https://tutor2u-net.imgix.net/subjects/economics/vegetable_oil_1.png?auto=compress%2Cformat&fit=clip&q=80&w=800)
Global palm-oil production rose by 20% from 2010 to 2014 as world consumption increased at a similar pace. Palm oil is a substitute for other edible oils made from soy-beans and rape seed.
Leading palm-oil producer and user Indonesia has announced a subsidy for biofuel production which is likely to lead to a growing supply of Palm oil in the future as producers look to increase output and take advantage of the subsidy.
![](https://tutor2u-net.imgix.net/subjects/economics/palm_oil_2.png?auto=compress%2Cformat&fit=clip&q=80&w=800)
The world price of palm oil is highly volatile; in March 2014 palm-oil contracts reached a high of $795 a tonne before falling to a five-year low of $550 in September 2014. More recently, concerns about floods hitting production have caused prices to rise once again.
![](https://tutor2u-net.imgix.net/subjects/economics/price_volatility_diagrams.png?auto=compress%2Cformat&fit=clip&q=80&w=800)
Recent fluctuations in the world price of palm oil are shown in the diagram below.
![](https://tutor2u-net.imgix.net/subjects/economics/palm_oil_3.png?auto=compress%2Cformat&fit=clip&q=80&w=800)
Revision questions:
- Explain how a subsidy for bio-fuels might affect production of palm oil in Indonesia
- To what extent is price volatility a problem for producers of palm oil and countries who produce and export large amounts of the product?
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