Monday May 14, 2012
The global palm oil phenomenon
By Tan Sri Augustine Ong Soo Hock
What started off as a trickle has now become a gushing spring
THE growth of the palm oil industry in Malaysia can be attributed to man's hunger to find sustainable sources for food and other essential items. World population in 2010 was about 6.8 billion, having grown by 28% from 5.3 billion in 1990.
This steep growth, especially in the developing countries in Asia and Africa, meant that new sources of food and non-food items needed to be cultivated.
The palm oil was the likely choice since it was found to be more efficient at producing edible oils than traditional sources such as soybean, rapeseed, sunflower, coconut and canola. For example, the oil palm can annually yield about five tonnes of oil per hectare, two and a half times higher than rapeseed and about seven times more than soy. Thus, where agriculture land is limited, cultivation of oil palm can meet increasing demand.
Apart from palm oil's ability to extend shelf life, shorten cooking time and contribute to texture as well as the flavour of food, it is also a rich source of vitamins and appears to have a positive effect on cholesterol levels in the body, compared with sources of saturated fats like coconut oil, dairy and animal fats.
In fact, it has been scientifically shown that palm olein is similar to olive oil in terms of reducing blood cholesterol.
What started off as a trickle has now become a gushing spring. Currently palm oil accounts for 30% of total edible oil production worldwide.
In addition, palm oil is also used in non-food products such as soap, detergent, toiletries and cosmetics. Other uses are being discovered almost daily, for example feedstock for the upcoming generation of renewable energy such as biofuels as well as the production of oleochemicals to be used as a feedstock for detergent formulations.
Many more innovations are coming onstream to convert what was previously waste products from plantations, mills and refineries into countless useful products.
Prices of crude palm oil (CPO) and crude palm kernel oil (CPKO) have risen in tandem with the increase in demand for almost every aspect of the oil palm. From 1991 to 1995, the five-year average annual domestic prices of CPO and CPKO were RM1,080 per tonne and RM1,280 pertonne.
By 2011, the overall average prices for CPO and CPKO in 2011 grew to RM3,280 and RM4,810 per tonne respectively.
According to the Performance Management & Delivery Unit (Pemandu), a unit under Malaysia's Prime Minister's Department, the oil palm industry is the fourth largest contributor of Malaysia's economy, accounting for RM53bil of the nation's gross national income (GNI).
The Economic Transformation Programme (ETP) identified palm oil as a major component of Malaysia's economy over the next 10 years and the focus is on improving oil palm cultivation productivity and utilisation of biomass, ensuring the productivity and sustainability of the industry under the ETP. This is in line with the Government's efforts to increase the total GNI contribution of the industry by RM125bil to RM178bil by 2020.
With such good prospects, it is not surprising that investments are pouring into the sector. Locally, the sector is largely dominated locally by large public-listed companies due to high investment costs, and these companies are typically vertically integrated, with operations in all three core activities of the oil palm industry i.e. oil palm cultivation, milling as well as refining of edible oils and fats and oleochemicals. New entrants into the market are coming in from end users such as China, India, Indonesia and some countries in Africa who are themselves investing in the sector to ensure a continuous supply of palm oil.
Downstream expansion is key to any player wanting to profit from this sector. There are opportunities to develop high-value end products that would further unlock the value in palm oil.
In this regard, Felda is well placed to capitalise on its existing plantations, milling and refining business to list its global investment arm Felda Global Venture Holdings Bhd (FGVH) to consolidate its multiple businesses and to seek new opportunities especially in the downstream business.
Felda with its long history of oil palm cultivation and processing since the 1960s, is in the right position to build on its expertise and the efforts of the early settlers who have toiled hard to lay the groundwork of Felda's success.
In view of the fact that Malaysia has limited land for further expansion upstream, FGVH would be well placed to go further downstream for high value products in order to stay competitive. However, downstream activities are capital intensive with a long-gestation period and more research and experiments are needed to derive the maximum benefit from this amazing gift from nature
The listing of FGVH will bring in the capital injection needed to pursue investments into this area while maintaining its other core plantation, refining and milling businesses.
● The writer is the president of the Malaysian Oil Scientists' and Technologists' Association and Palm Oil Research Institute of Malaysia former director-general.