ASYMMETRIC EFFECTS OF CLIMATE CHANGE ON PALM OIL PRICES IN MALAYSIA
Main Article Content
Abstract
Of all major vegetable oils, palm oil remains extremely productive crop. Malaysia is currently the world’s second-largest producer and also the world's second-largest exporter of palm oil. However, the sector most vulnerable to climatic condition is agriculture. Extreme climatic events include high temperature levels, drought and flash floods. Such events affect oil palm growth and promote plant disease which then, increase the palm oil price. Previous understandings suggest that the changing climate and palm oil prices follow similar behaviour patterns. Therefore, this study aims at exploring the asymmetric relations between climate change and palm oil prices from 1964-2016. A nonlinear autoregressive distributed lag (NARDL) cointegration methodology was employed for the estimations. Overall, the results suggest the presence of a significant and asymmetric relation between palm oil prices and temperature in the long run, the impact of a fall in the temperature is more pronounced than when the temperature increases. In contrast, the responses of the palm oil prices to the rainfall show a symmetric but insignificant in the long run. Such findings are of great importance in showing that palm oil price reacts differently to rising and falling temperature, but not for rainfall. Therefore, long-term sustainability requires a diverse and robust technological and knowledge base to enhance palm oil productivity and efficiency in order to reduce the vulnerability of palm oil to climate change.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Ab Rahman, A. K., Abdullah, R., Balu, N., & Shariff, F. M. (2013). The impact of La Niña and El Niño events on crude palm oil prices: An econometric analysis. Oil Palm Industry Economic Journal, 13(2), 38–51.
Ab Rahman, A. K., Abdullah, R., & Shariff, F. M. (2012). The economic impact of the North-East monsoon and La Niña on oil palm production in Malaysia. Oil Palm Industry Economic Journal, 12(2), 22–35.
Adnan, H. (2015, January 31). Palm oil to see healthy growth. The Star. Retrieved from https://www.thestar.com.my/business/business-news/2015/01/31/palm-oil-to-see-healthy-growth
Atil, A., Lahiani, A., & Nguyen, D. K. (2014). Asymmetric and nonlinear pass-through of crude oil prices to gasoline and natural gas prices. Energy Policy, 65, 567–573. https://doi.org/https://doi.org/10.1016/j.enpol.2013.09.064
Awad, A., Arshad, F. M., Shamsudin, M. N., & Yusof, Z. (2007). The palm oil import demand in Middle East and North African (MENA) countries. Journal of International Food & Agribusiness Marketing, 19(2–3), 143–169. https://doi.org/10.1300/J047v19n02_08
Bandara, J. S., & Cai, Y. (2014). The impact of climate change on food crop productivity, food prices and food security in South Asia. Economic Analysis and Policy, 44(4), 451–465. https://doi.org/https://doi.org/10.1016/j.eap.2014.09.005
Brunner, A. D. (2002). El Niño and world primary commodity prices: warm water or hot air? The Review of Economics and Statistics, 84(1), 176–183. https://doi.org/10.1162/003465302317332008
CCSP. (2008). The effects of climate change on agriculture, land resources, water resources, and biodiversity in the United States. A Report by the U.S. Climate Change Science Program and the Subcommittee on Global Change Research. P. Backlund, A. Janetos, D. Schimel, J. Hatfield, K. Boote, P. Fay, L. Hahn, C. Izaurralde, B.A. Kimball, T. Mader, J. Morgan, D. Ort, W. Polley, A. Thomson, D. Wolfe, M.G. Ryan, S.R. Archer, R. Birdsey, C. Dahm, L. Heath, J. Hicke, D. Hollinger, T. Huxma. U.S. Department of Agriculture, Washington, DC., USA.
Challinor, A. J., Watson, J., Lobell, D. B., Howden, S. M., Smith, D. R., & Chhetri, N. (2014). A meta-analysis of crop yield under climate change and adaptation. Nature Climate Change, 4, 287–291. Retrieved from https://doi.org/10.1038/nclimate2153
DOSM. (2019). Selected agricultural indicators, Malaysia, 2019. Retrieved December 30, 2019, from https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=72&bul_id=SEUxMEE3VFdBcDJhdUhPZVUxa2pKdz09&menu_id=Z0VTZGU1UHBUT1VJMFlpaXRRR0xpdz09
Fleiss, S., Hill, J. K., McClean, C., & Lucey, J. M. (2017). Potential impacts of climate change on oil palm cultivation - A science-for-policy paper by SEnSOR programme.
Haile, M. G., Wossen, T., Tesfaye, K., & von Braun, J. (2017). Impact of climate change, weather extremes, and price risk on global food supply. Economics of Disasters and Climate Change, 1(1), 55–75. https://doi.org/10.1007/s41885-017-0005-2
Hassan, N. A. M. H., Ahmad, S. M., & Balu, N. (2018). Relationship between severe El Niño phenomena and Malaysia’s palm oil production - A VECM approach. Oil Palm Industry Economic Journal, 18(1), 1–8.
Ibrahim, M. H. (2015). Oil and food prices in Malaysia: A nonlinear ARDL analysis. Agricultural and Food Economics, 3(2), 1–14. https://doi.org/10.1186/s40100-014-0020-3
In, F., & Inder, B. (1997). Long-run relationships between world vegetable oil prices. Australian Journal of Agricultural and Resource Economics, 41(4), 455–470. https://doi.org/10.1111/1467-8489.00024
Kamil, N. N., & Omar, S. F. (2016). Climate variability and its impact on the palm oil industry. Oil Palm Industry Economic Journal, 16(1), 18–30.
Katrakilidis, C., & Trachanas, E. (2012). What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration. Economic Modelling, 29(4), 1064–1069. https://doi.org/http://dx.doi.org/10.1016/j.econmod.2012.03.029
Knox, J., Hess, T., Daccache, A., & Wheeler, T. (2012). Climate change impacts on crop productivity in Africa and South Asia. Environmental Research Letters, 7(34032), 1–8. https://doi.org/10.1088/1748-9326/7/3/034032
Kumar, S. (2017). On the nonlinear relation between crude oil and gold. Resources Policy, 51, 219–224. https://doi.org/https://doi.org/10.1016/j.resourpol.2017.01.003
Lamotte, O., Porcher, T., Schalck, C., & Silvestre, S. (2012). Asymmetric gasoline price responses in France. Applied Economics Letters, 20(5), 457–461. https://doi.org/10.1080/13504851.2012.714063
Lobell, D. B., & Gourdji, S. M. (2012). The influence of climate change on global crop productivity. Plant Physiology, 160(4), 1686–1697. https://doi.org/10.1104/pp.112.208298
MOSTE. (2000). Malaysia initial national communication submitted to the United Nations framework convention on climate change. Kuala Lumpur, Malaysia.
Murad, M. W., Molla, R. I., Mokhtar, M., & Raquib, M. A. (2010). Climate change and agricultural growth: An examination of the link in Malaysia. International Journal of Climate Change Strategies and Management, 2(4), 403–417.
Nazlioglu, S. (2011). World oil and agricultural commodity prices: Evidence from nonlinear causality. Energy Policy, 39(5), 2935–2943. https://doi.org/https://doi.org/10.1016/j.enpol.2011.03.001
Nsabimana, A., & Habimana, O. (2017). Asymmetric effects of rainfall on food crop prices: Evidence from Rwanda. Environmental Economics, 8(3), 137–149.
Pachauri, R. K., Allen, M. R., Barros, V. R., Broome, J., Cramer, W., Christ, R., … Dasgupta, P. (Eds.). (2014). Climate change 2014: Synthesis report. Contribution of Working Groups I, II and III to the fifth assessment report of the Intergovernmental Panel on Climate Change. Geneva, Switzerland: IPCC.
Peng, S., Huang, J., Sheehy, J. E., Laza, R. C., Visperas, R. M., Zhong, X., … Cassman, K. G. (2004). Rice yields decline with higher night temperature from global warming. Proceedings of the National Academy of Sciences, 101(27), 9971–9975. https://doi.org/10.1073/pnas.0403720101
Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed-lag modelling approach to cointegration analysis. In S. Strøm (Ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium (pp. 371–413). Cambridge University Press.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Raza, N., Jawad Hussain Shahzad, S., Tiwari, A. K., & Shahbaz, M. (2016). Asymmetric impact of gold, oil prices and their volatilities on stock prices of emerging markets. Resources Policy, 49, 290–301. https://doi.org/https://doi.org/10.1016/j.resourpol.2016.06.011
Rosenzweig, C., & Parry, M. L. (1994). Potential impact of climate change on world food supply. Nature, 367(6459), 133–138.
Schellnhuber, H. J., Hare, B., Serdeczny, O., Schaeffer, M., Adams, S., Baarsch, F., … Vieweg, M. (2013). Turn down the heat: Climate extremes, regional impacts, and the case for resilience. World Bank. Washington DC: International Bank for Reconstruction and Development.
Schlenker, W., & Lobell, D. B. (2010). Robust negative impacts of climate change on African agriculture. Environmental Research Letters, 5(14010), 1–8. https://doi.org/10.1088/1748-9326/5/1/014010
Schlenker, W., & Roberts, M. J. (2009). Nonlinear temperature effects indicate severe damages to U.S. crop yields under climate change. Proceedings of the National Academy of Sciences, 106(37), 15594–15598. Retrieved from http://www.pnas.org/content/106/37/15594.abstract
Shimizu, H., & Desrochers, P. (2012). The health, environmental and economic benefits of palm oil. IEM’s Economic Note, 1–4.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. C. Sickles & W. C. Horrace (Eds.), Festschrift in Honor of Peter Schmidt SE - 9 (pp. 281–314). Springer New York. https://doi.org/10.1007/978-1-4899-8008-3_9
Tan, K. T., Lee, K. T., Mohamed, A. R., & Bhatia, S. (2009). Palm oil: Addressing issues and towards sustainable development. Renewable and Sustainable Energy Reviews, 13(2), 420–427. https://doi.org/https://doi.org/10.1016/j.rser.2007.10.001
Ubilava, D. (2017). The ENSO effect and asymmetries in wheat price dynamics. World Development, 96, 490–502. https://doi.org/10.1016/j.worlddev.2017.03.031
Ubilava, D., & Holt, M. (2013). El Niño southern oscillation and its effects on world vegetable oil prices: Assessing asymmetries using smooth transition models. Australian Journal of Agricultural and Resource Economics, 57(2), 273–297. https://doi.org/10.1111/j.1467-8489.2012.00616.x
USDA. (2019). United States Department of Agriculture - Poduction, supply, and distribution (PSD) database. Retrieved December 29, 2019, from https://apps.fas.usda.gov/psdonline/app/index.html#/app/downloads
Vaghefi, N., Shamsudin, M. N., Makmom, A., & Bagheri, M. (2011). The economic impacts of climate change on the rice production in Malaysia. International Journal of Agricultural Research, 6(1), 67–74.
Watkins, K. (2007). Human Development Report 2007/2008 - Fighting Climate change: Human solidarity in a divided world. United Nations Development Programme (UNDP). New York, NY.
WDI. (2019). World Development Indicators - Table 3.8 : Energy dependency, efficiency and carbon dioxide emissions. Retrieved January 1, 2020, from http://wdi.worldbank.org/table
Wheeler, T., & von Braun, J. (2013). Climate change impacts on global food security. Science, 341(6145), 508–513. https://doi.org/10.1126/science.1239402
White, J. W., Hoogenboom, G., Kimball, B. A., & Wall, G. W. (2011). Methodologies for simulating impacts of climate change on crop production. Field Crops Research, 124(3), 357–368. https://doi.org/https://doi.org/10.1016/j.fcr.2011.07.001
Wong, K. K. S., Lee, C., & Wong, W. L. (2019). Impact of climate change and economic factors on Malaysian food price. Journal of the International Society for Southeast Asian Agricultural Sciences, 25(1), 32–42. Retrieved from https://www.scopus.com/inward/record.uri?eid=2-s2.0-85069653021&partnerID=40&md5=7e779717127247cf124f7464bc631c19
Zainal, Z., Shamsudin, M. N., Mohamed, Z. A., & Adam, S. U. (2012). Economic impact of climate change on the Malaysian palm oil production. Trends in Applied Sciences Research, 7(10), 872–880.