Effect of Climate Change on Palm Oil Production in Malaysia

Wan Noranida WMN, Amin MA, Ismail AL

Abstract: Abstract: Climate change has potential to damage irreversibly the natural resource with crucial consequences for agricultural productivity. According to the World Bank, oil palm was the main contributor of Gross Domestic Product (GDP) for Malaysian agriculture. This paper investigated the long run cointegration between the yield of palm oil, palm oil price, planted area and climate factors such as rainfall and precipitation in Malaysia. An annual time series data was used for the period of 34 years from 1983 to 2016, and Auto Regressive Distributed Lags (ARDL) cointegration approach was employed in achieving the objective of the study. The results revealed the long run models were cointegrated in all parameters. It found that an increase in temperature has a negative impact on palm oil production. Quantifying the impacts of climate change on palm oil production can help policy makers determine the best adaptation and mitigation measures.

Keywords: Climate model, economic impact, oil palm, production function, autoregressive distributed lags