Palm sector expects a 20% drop in its production due to climate impact

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By LatAm Reports Editorial Team

Exports of edible fats and oils, mostly from palm oil, exceeded $1 billion by 2023, however, this year a reduction of at least 20% is projected as a result of climate variability.

Several factors have had an impact on the improvement in prices and the volume of palm oil production, which in 2023 exceeded US$1 billion, becoming the second foreign exchange-generating product of the 25 main export goods, according to official records of the closure of foreign trade.

The figures indicate that the production of palm oil was one million 100 thousand metric tons last year, positioning Guatemala as one of the key players in the industry, but for this harvest there is a severe reduction.

Producers already foresee a possible 20% contraction of annual production, associated with the effect of the El Niño phenomenon, which will impact on the production of fruit to extract oil, and the chain is realistic in the face of this situation.

During this week, Antigua Guatemala is the venue of the IV Palmer CPAL Congress, which brought together more than 640 participants from 16 countries, and the trends of the sector, progress and challenges, as well as sustainability and information exchange, the activity that ends today, was announced.  

Expectations

José Santiago Molina, president of the Gremial de Palmicultores de Guatemala (Grepalma), indicated that there are several factors that explain the growth recorded in 2023 in terms of the volume and amount of foreign exchange generator of palm oil exports, something that will not be repeated in 2024.

Molina commented that the pandemic and, more recently, the conflict between Russia and Ukraine, have had an impact on international commodity prices, which generally vary according to the price of oil, but palm oil, which has several uses, has not been so affected, and fortunately for the oil markets, that conflict between Russia and Ukraine hit sunflower production in the world, which generated a shortage, and began to generate demand for palm in the countries that produce it.

What we are seeing is that the demands for the multiple uses of palm oil have managed to keep the price on average that allows us to go forward, grow and that allows new producers -producers – to move to this permanent crop, which is well managed, the manager said.

“We have seen that in January and February the fall in production has been more drastic”

José Santiago Molina, President Grepalma

Among the uses, in addition to the food industry in which this raw material is used, is the manufacture of cosmetics, soaps, biodiesel, agrochemistry, among others.  In 2023 the average of a metric ton of palm oil was US$953 and so far in 2024 it is US$985 on the spot market. 

At present, the production of palm is 180 thousand hectares, but there is an opportunity for 800 thousand hectares, according to the Ministry of Agriculture, Livestock and Food (Maga).

Molina said that with only 180 thousand hectares Guatemala is the sixth producer in the world, and the second producer in Latin America, and if 800 thousand hectares are achieved, the contribution to the Gross Domestic Product (GDP) would be much greater, and especially the tasks that are done in the communities that benefit from the investment of this industry.

The president of Grepalma recalled that the product is the number one export product to markets in Europe and Mexico.

Low production

On the projections of palm oil production, the manager said that the estimates are not favorable, and this is due to the presence of the El Niño phenomenon that began to affect from June 2023 to date, and a 20 percent decrease in fruit is estimated.

Have we seen that in January and February the fall in production has been more drastic. I don’t think a million 100 thousand tons will be reached for a production; he doubted that we will reach 900 thousand tons in 2024 which is the estimate, the president of Grepalma said.

He said that for plantations where there is irrigation there will be no problem, because the water is replaced, but the inconveniences are where there is no irrigation, which is in most of the country, including the Transversal Strip of the North, the South of Petén, the Polochic Valley and the Motagua Valley.

In addition, this year the La Niña phenomenon is expected, with excessive water, so the plantations have been designed with adequate drainage systems.   

This climate phenomenon would be present in July or August of this year, according to the analyses of the sector.

Challenges

The sector also faces challenges mainly in the infrastructure part, specifically in the state of the roads, both those of the soil and the paved, as transport services pay more than the global average for the export of raw materials.

Another problem is the inefficiency in the National Port Company Santo Tomás de Castilla (Empornac) in Izabal, where the export product leaves and where they are not competitive prices compared to other port terminals for the services that are required.

Annual growth

In 2023 it grew by an additional 5,000 hectares and the same amount is expected for this year.

Speaking about growth for the next five years, the management of Grepalma emphasized that it depends on international prices, the interest rates of the financial system, and other indicators that have to do with the decision-making of producers.

Growth area

Currently, the areas of growth in palm cultivation are in the north of the country, especially in the livestock land of Petén, the Northern Transversal Strip that goes from Izabal to Quiché, are sectors where there is a lot of opportunity.

In Izabal, the crop is very advanced, but it is also a sector of opportunity, and on the South Coast, there is competition with other crops such as sugar cane and banana, for the quality of soils, and where the values of the land are much higher. 

Reaching Colombia

The agro-industrial sector also has a short- and medium-term programme, and one of the objectives is to increase the area of cultivation.

The first palm oil producer in Latin America is Colombia, with 500 thousand hectares, but the main ones worldwide are in Asia, including Indonesia, with 11 million hectares; Malaysia, with six million hectares; and Thailand, with two million hectares.

In productivity, palm oil has an average of 26.7 tons of cluster of fresh fruit per hectare per year, and 5.9 metric tons of crude palm oil per hectare each year.

Molina concluded that in Guatemala there are good soils, good farmers, best practices and well nourished, which generates a good climate to continue with investment.

This article has been translated from the original which first appeared in Prensa Libre