Thailand's food makers could enjoy lower palm oil prices this year, with domestic production expected to increase by around a third.
The country's production had been significantly depressed during 2004-2005 owing to drought but with an extra 100,000 -200,000 hectares to be planted with oil palms this year and next year, and better weather boosting extraction rates, output is forecast to substantially increase.
A report by the US agricultural attaché predicts it could rise by almost 30 per cent to 900,000 tons in 2006, while an industry source tells AP-Foodtechnology.com that he expects output to reach nearly 1 million tons.
"This means that the food industry is likely to be paying lower prices for palm oil this year," he said.
Consumption of palm oil in the food sector is growing, thanks to its cost advantages over other vegetable oils. Retail prices for refined palm oil (olein) are currently 27-30 baht per litre, compared to 36-37 baht for refined soybean oil.
Food makers may also be responding to recent efforts by countries like Malaysia to promote the health benefits of the oil. Currently olein palm oil accounts for about 60-70 per cent of total cooking oil consumption in Thailand.
However while prices may go down this year, industry expects the government to prevent them from falling too low.
Farmers in the south of the country have been encouraged to switch from rubber trees to oil palms by the promise of strong demand for the oil in biodiesel production.
However many commentators remain skeptical about rapid development of the biofuel industry in Thailand.
Thailand has a high dependence on crude oil for fuel and the government has announced plans to grow the sector, which could consume some 200,000 tons of crude palm oil produced in the country.
But one producer called biodiesel "the big unknown factor" and noted that he can still get higher prices for palm oil on the world market.