Consumer Sentiment, Biodiesel Production, Governance and Palm Oil Price Volatility: Evidence from Major Palm Oil Producers
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Abstract
The ever rising usage of palm oil in a broad range of consumer and energy products has strengthened the conviction that palm oil has now become an increasingly important commodity in many countries. As stated by The United States Department of Agriculture (2016), Indonesia, Malaysia, Thailand, Colombia, and Nigeria are the top five largest producers of palm oil in the world. These countries are blessed with impressive natural environment for oil palm plantation. Nevertheless, a good condition is not sufficient for successful development of palm oil. Other significant element including price stability of palm oil reduces price volatility, thereby facilitates consistent palm oil production and in turn promotes economic growth.
Prior literature shows a significant impact of governance and consumer sentiment on price volatility in the context of the crude oil and gasoline (Plante and Traum, 2012; Global Risk Insights, 2015; Du et al., 2016). However, no study explores the potential role of governance, biodiesel production, and consumer sentiment in influencing the palm oil price volatility. The objective of this research is to examine whether governance, biodiesel production, and consumer confidence as a proxy for consumer sentiment exert important influence on reducing palm oil price volatility in the world’s top five largest palm oil producing countries. Empirical examinations of the impact of governance, biodiesel production, and consumer sentiment on palm oil price volatility are performed using panel data analysis.
The findings of this research fill the gap in the existing literature on the drivers of palm oil price volatility. This research is expected to document novel evidence on the extent to which governance, biodiesel production, and consumer confidence alleviate the fluctuations in palm oil prices. In addition, the findings provide valuable insights for policymakers to design and adopt appropriate palm-oil-price-stabilization policies and strategies that form top priority in today’s development agenda.
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