Intraregional Export Flows and Export Efficiency in Palm Oil and Palm-Based Products: Southeast Asia and Latin America Regions Compared

ABSTRACT

Arguably, leveraging the intraregional market is important for a commodity like palm oil that constantly faces challenges to sustain global demand in extraregional markets. The article, therefore, compares intraregional export potentials for palm oil in two regions that are at the frontier for palm oil expansion, Southeast Asia and Latin America. The study employs a stochastic frontier gravity model to estimate intraregional export performance. The results indicate large untapped potentials and low-efficiency levels in both regions. The evidence further suggests that the export potential limiting factors have increased over time.

KEYWORDS:

• Stochastic frontier gravity model
• trade potential
• palm oil and palm-based products
• Southeast Asia
• Latin America

Disclosure statement

No potential conflict of interest was reported by the authors.

Supplemental data

Supplemental data for this article can be accessed on the publisher’s website.

Notes

¹ It is worth noting that the propensity toward extraregional exports are somewhat high for Colombia (Furumo and Aide 2017). Colombia has, therefore, joined Indonesia and Malaysia via the Council of Palm Oil Producing Countries (CPOPC) to urge the EU to refrain from legislating a ban on palm biodiesel.

² The global demand for palm oil (global food and biofuel markets) is estimated to grow at 5% per year (Susanti and Maryudi 2016).

³ NTMs are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both (UNCTAD 2015).

⁴ Behind the border measures refer to a variety of NTMs that operate inside countries rather than at the border, but that nonetheless can restrict or discriminate trade. It includes SPS, TBTs, subsidies to exporters, regulations such as competition, trade-related investment measures, and government procurement and distribution restrictions (see Appendix, Table A1).

⁵ TBTs feature the technical regulations, product standards, environmental regulations, labeling, and other related measures that have bearings on human health and animal welfare. SPS measures correspond to the standards and procedures to protect human, animal, and plant health from diseases, pests, toxins, and other contaminants.

⁶ The appendix can be found online at www.tandfonline.com/uitj.

⁷ Trade potential is the trade achieved at a frontier that estimates a level of trade that might be achieved in the case of the most open and frictionless (Armstrong 2007; Drysdale, Huang, and Kalirajan 2000; Kalirajan 2000).

⁸ Trade efficiency (TE) is a measure of actual levels of trade against potential trade and can be estimated statistically using the stochastic frontier gravity model for all trade flows (Kalirajan 2007).

⁹ The estimation of the frontier, or potential trade, is made using core determinants of trade as the theoretical derivations would suggest (Armstrong 2007).

¹⁰ https://databank.worldbank.org/source/world-development-indicators.

¹¹ https://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx?sCS_ChosenLang=en.

¹² http://www.cepii.fr/cepii/en/bdd_modele/bdd.asp.

¹³ Approximately 33% and 37% of the total number of observations in the data sets for intra-ASEAN exports and intra-LAC exports, respectively, have zero values.

¹⁴ The RESET p-values of 0.0873 and 0.2899 for intra-ASEAN and intra-LAC specifications (without the time dummies and country effects but with standard errors clustered by country-pairs), respectively, indicate that the null hypothesis cannot be rejected at the 5% level of significance, and therefore, the PPML is favored.

Additional information

Funding

This study is supported by the University of Malaya Grand Challenge (GC) programme, GC003C-17SBS.