SINGAPORE: Mewah Group, a palm oil firm with refineries in Malaysia, is planning to raise as much as US$500 million (US$1 = RM3.22) in a Singapore initial public offering (IPO) for expansion, two sources involved in the IPO said yesterday.
The planned listing, which will result in new investors owning 12-20 per cent of Mewah’s enlarged share capital, is scheduled for the fourth quarter of this year, sources said. Credit Suisse and BNP Paribas are managing the offer, they added.
Mewah, whose main shareholders are Singaporean, owns three palm oil refineries in Malaysia and produces vegetable oil products include cooking oil, margarine and specialty fats used in ice cream, according to its website (www.mewahgroup.com). The refineries, namely; Ngo Chew Hong Oils & Fats (M) Sdn Bhd, Mewaholeo Industries Sdn Bhd and Mewah-Oils Sdn Bhd are located at Semenyih, Pasir Gudang and Pulau Indah.
The firm also has several sister firms in Singapore whose activities range from marketing Mewah products to providing transport and warehousing services. “The group has approximately US$2 billion turnover (and) the refineries have a combined output of about 2.5 million tons per annum,” a source familiar with Mewah said.
Mewah preferred to be described as a “Singapore-based group with refineries in Malaysia” rather than as a Malaysian firm, he added. – Reuters
UBS and Lazard advised CSR on the deal. Australia & New Zealand Banking Group advised Wilmar.
“This is positive news as it’ll help jump start their strategy to expand in the sugar business and (represents) the next growth driver for Wilmar,” said DBS Vickers analyst Ben Santoso. He expected the new business to see synergies from capitalising on Wilmar’s extensive distribution to China and Asia.
CIMB analyst Ivy Ng said the deal was positive in the medium term as it gave Wilmar knowledge to expand to other parts of Asia. “But in the short term, based on what they have so far it does not appear the acquisition will significantly increase their earnings,” she said. “In the longer term, it would be good if they can replicate the business in other parts of Asia like China, India and Indonesia, but you won’t see that tomorrow.”
CSR said the deal was expected to be completed by the last quarter of 2010, and is conditional on approval by Australia’s Foreign Investment Review Board. – Reuters
This is written by my colleague, Rupa Damodaran.
US-BASED public policy research institute, the Heritage Foundation, has chided the World Bank for its plans to revise its strategy for future development assistance in the palm oil sector.
The International Finance Corp (IFC), under the World Bank, suspended approval of new palm oil development investment in September 2009, pending a review of practices in the sector.
It is learnt that the IFC’s moratorium had hampered investment plans of several Malaysian planters keen on expanding oil palm cultivation in Africa.
The Washington-based Heritage Foundation is also urging the Obama Administration to advise the bank to uphold its original mission of alleviating poverty with a pro-growth strategy.
Roberts, in his newly released research paper, said the palm oil sector is vital to economic growth and job creation in Indonesia, Malaysia and other developing countries. “Restriction to further development in the palm oil sector will block opportunities to raise living standards and reduce poverty levels in the third world. Strings, in the form of narrowly-defined sustainable criteria, attached to World Bank’s loans will potentially harm trade and investment partners too,” he said.
For the past decade, numerous western environment activists have campaigned against oil palm planting in tropical countries, alleging that it destroys rainforests and endangers wildlife such as the orang utan. “These groups are selective in their environmental crusade. The real motive is to oppose imports of cheaper but higher quality vegetable oils into Europe because it threatens the market share of their homegrown rapeseed oil,” he added.
Many of these environmental activists who target their attacks on oil palm planting nations like Malaysia and Indonesia are recipients of tens of the millions of euros in annual grants from the EU environment ministries and the European Commission, the Heritage Foundation report revealed.
“Foreign direct investments to develop the palm oil industry has played an important part in fuelling the economic growth and freedom in developing nations. In the last 30 years, oil palm planting investmens has increased stability and prosperity in Indonesia and Malaysia (together accounting for as much as 85 per cent of world palm oil production), as well as Colombia, Liberia and Ghana,” he said.
The oil palm industry employs more than 570,000 in Malaysia and over three million people in Indonesia, contributing to more than US$27 billion (RM87.5 billion) in sales, in 2007.
Roberts said over the past five decades, the World Bank and the IFC together have invested nearly US$1.3 billion (RM4.2 billion) in oil palm projects and have helped palm oil-producing countries develop prudently while protecting the environment and wildlife.
“It is distressing to see the World Bank re-orientating its development resources away from private sector economic and agricultural development projects,” he said.
This news article was published last week, 23rd June 2010.
SWITZERLAND’S biggest supermarket chain operator Migros did not said it will stop buying palm oil from us, says a spokesperson for IOI Corp Bhd.
In fact, both companies said they will seek to engage with environmental activists who, without evidence or proof, have alleged IOI of illegal land grab and forest burning.
In a statement issued from the Netherlands yesterday, IOI said the allegations surfaced when the Miri High Court declared on March 31 this year, that the villagers had won a suit against the state authorities and IOI over a land dispute.
This case, however, is not over. IOI and the Sarawak government agency Land Custody and Development Authority (Pelita), have filed an appeal. “The court did not allow the natives’ claims for a declaratory order to cancel the leases issued for the lands.
“Thirdly, the court did not grant any injunction sought by the natives restraining IOI and Pelita from remaining and continuing its operation on the lands,” said IOI.
“It is very important for IOI and Migros to clarify the current situation and define the next steps,” said the spokesperson.
Migros Industries head of food production Robert Keller was recently reported as saying that his company plans to submit a fact-finding request to the Roundtable for Sustainable Palm Oil (RSPO), over the illegal land grab and deforestation allegations by environmental activists.
“Therefore, earlier news reports have wrongly judged IOI over allegations that are not proven,” the IOI spokesperson explained.
Currently, IOI has three RSPO-certified plantations in Malaysia. It hopes to receive certification for all of its holdings by the end of next year. In April this year, IOI was the first among RSPO members to offer large-scale segregated palm oil shipment to Europe.
EMERY Oleochemicals Group, an equal joint venture between Thailand-based PTT Chemical International Pte Ltd and Sime Darby Plantation Sdn Bhd, has set aside US$200 million (RM644 million) as capital expenditure (capex) for the next five years.
Emery, whose global capacity touches 1 million tonnes a year, plans to double its Asian capacity to around 650,000 tonnes a year.
In 2006, half of Cognis oleochemical business was sold to Golden Hope Plantations Sdn Bhd, now part of Sime Darby Bhd. In November 2008, Cognis owners sold the remaining 50 per cent stake to PTT Chemical for €104 million (RM412.88 million).
Renamed as Emery, the oleochemicals group continue to provide job opportunities to more than 1,000 people in the US, Europe and Asia.
My friend is treating me to a sumptuous lunch of steak teppanyaki. Yay!
CHINA has recognised Malaysia as an approved investment destination under its Qualified Domestic Institutional Investor (QDII) scheme administered by the China Banking Regulatory Commission (CBRC).
The Securities Commission (SC) said in a statement yesterday that the recognition is a major step forward for the Malaysian capital market as it will facilitate the flow of Chinese funds into the country and open up business opportunities for the Malaysian capital market intermediaries.
SC chairman Tan Sri Zarinah Anwar and CBRC chairman Liu Ming Kang signed the letters of exchange in Beijing, China, yesterday to formalise the recognition.
Also present were Bursa Malaysia chairman Tun Mohamed Dzaiddin Abdullah, Malaysian ambassador to China Datuk Iskandar Sarudin and Finance Ministry’s deputy secretary general (policy) Datuk Latifah Datuk Abu Mansor.
At the same time, the China Securities Regulatory Commission (CSRC) confirmed Malaysia as an approved investment destination based on its memorandum of understanding signed with the SC in 1997. QDII is a scheme which enables Chinese nationals to invest in overseas markets through approved institutions.
Approved institutions regulated by CBRC and CSRC may now invest funds pooled from their clients into Malaysian securities, including equities, fixed-income products and collective investment schemes approved by the SC. They may also engage the services of licensed Malaysian fund managers to assist with QDII investment matters.
SC said the potential inflows of Chinese funds will contribute to increased liquidity in the Malaysian market.
With the designation, the country now joins the ranks of 10 other QDII recognised jurisdictions under the CBRC. They are Australia, Canada, Hong Kong, Germany, Japan, Luxembourg, Singapore, South Korea, the UK and the US.
In a separate statement, Bursa Malaysia Bhd chief executive officer Datuk Yusli Mohamed Yusoff said the QDII recognition was a significant development for the Malaysian market in paving the way for China funds seeking investment opportunities in this part of the region. “This augurs well for Bursa Malaysia and is aligned with our other initiatives such as improving our country classification for the capital market,” Yusli said.
US funds can now trade palm oil in KL
The United States Commodity Futures Trading Commission (US CFTC) has allowed member brokers of Bursa Malaysia Derivatives Bhd to solicit and accept orders and customer funds directly from US customers without the need to register separately as a futures broker in the US.
Bursa Malaysia said in a statement that this approval was issued in relation to Regulation 30.10 of the US Commodity Exchange Act. “The approval was premised on the fact that member brokers of Bursa Malaysia Derivatives Bhd are subject to comparable customer protection standards in Malaysia,” it said.
Bursa Malaysia Derivatives chief executive officer Chong Kim Seng said it was a new added opportunity for its brokers to capitalise on this opportunity to increase their trading base.
“With the approval from US CFTC, and through the active solicitation of our brokers, we believe that Bursa Malaysia Derivatives’ futures products will gain wider market access and thereby, encourage more cross border trading. It will eventually create more vibrancy in the market and strengthen the profile of our derivatives offerings,” he added.
Member brokers are required to file certain representations with the US National Futures Association to avail themselves of the Regulation 30.10 relief.
Datuk Mohd Bakke Salleh has been named the new chief of Sime Darby Bhd and analysts think he could be the man to fix the conglomerate based on his track record.
Bakke earned his spurs after he helped to restructure Lembaga Tabung Haji in 2001-2002 following fraudulent withdrawals and poor investment decisions. The 56-year-old Bakke is currently group president and chief executive of Felda Global Ventures Holdings Sdn Bhd, the overseas investment arm of Felda Group.
TA Securities analyst James Ratnam said Bakke’s appointment as Sime Darby’s president and group chief executive makes sense due to his experience in plantations and properties and these are the divisions that contribute most to the company’s bottomline. “He’s reputed to be straightforward and takes a hands-on approach in managing large entities,” Ratnam said.
Bakke’s appointment, which will happen “as soon as practicable” comes in the wake of Sime Darby losing about RM1 billion from several energy and utility projects.
Sime Darby’s board has yet to meet Bakke. “He’s travelling. We’ve not had a chance to discuss employment tenure and possible salary package,” Sime Darby chairman Tun Musa Hitam said at a press conference yesterday.
He then said it might be timely to take a fresh look at remuneration although the board is guided by market rates.
Asked if Bakke’s appointment was recommended by Prime Minister Datuk Seri Najib Razak, he replied, “No, the Prime Minister does not recommend. The Nomination Committee within the Board recommended Datuk Bakke and I’m pleased to say he is eminently suitable for the job.”
Musa also declined to say who else was recommended for the job. Datuk Azhar Abdul Hamid, the head of Sime Darby Plantation Sdn Bhd, will continue to be acting chief executive of Sime Darby until Bakke assumes his new role.
Shares of Sime Darby rose one sen to close at RM7.81 yesterday.
Mercury Securities senior analyst Edmund Tham said he had expected the appointment to come from among existing leaders in other government-linked companies.
制药公司Hovid，通过子公司Agrovid SA，计划在5年内投资300万马币在哥伦比亚种植油棕树 。
“这不是一朝一夕的决定。 此实我们早在十年前考虑(往哥考虑伦比亚的发展) ，”Hovid总经理 David Ho 告诉马来西亚商业时报 (Malaysia Business Times)。
约2008年中，Hovid在Alto Manacacias, Puerto Gaitan，买了两块农地测量3299 公顷，价指 3.6万马币 . “这（投资）是一个长期的移动补充业务，以确保对我们的健康植物营养素的充足供应棕榈油，”何说。
. 棕榈油通过分子蒸馏提取原生植物营养素后，科学家们留下了另一种产品，叫做甲基酯。 何解释说，主要是甲基酯生物柴油。 “从棕榈油，我们得到的医疗用途的植物营养素，以及剩下的可用于燃料。”
Agrovid还计划在哥伦比亚出售生物柴油。 哥伦比亚已经授权使用柴油百分之5的国家，加入生物柴油。 “燃料的使用有没有补贴。. 因此，哥伦比亚政府更容易执行其B5的任务，“何说。
Hovid购买哥伦比亚大豆田 以过两年了。 当问为什么Agrovid缓慢补植油棕榈树与大豆作物，何说，土地转让技术问题比他最初的估计需要较长的时间。
” 我们希望开拓提前一年结束这与我们的计划。” 何对哥伦比亚对种植棕榈树表示乐观。 这毕竟是世界上第五大棕榈油的生产国。
Agrovid可能往丁美洲航运幼苗杂种。 “我们并不一定希望植物DXP的杂种。 我们首要的是可以生产三烯集中的高源油棕榈树，“他说。
PHARMACEUTICAL company Hovid Bhd, via subsidiary Agrovid SA, plans to invest RM3 million over five years to plant oil palms in Colombia.
“I’m sure, under the leadership of Tun Musa Hitam, Sime Darby still has a chance to rise like a phoenix from the ash,” he said.
To a question on public response after the publication of his letter titled “The true story of Sime Darby” on the Internet and newspaper, he replied, “Oh yes, I received calls from my fans, friends and enemies. I didn’t realise I had that many enemies,” he said, laughing.
Dr Chan had, in the past, helped restructure Renong Bhd and Multi-Purpose Holdings Bhd.
The following are written by my colleague Rupa Damodaran.
European Union (EU) lawmakers are increasingly convinced that Malaysia is on the same path as the EU on the sustainability of palm oil production, but would need more scientific data to support Malaysia’s case.
Dan Jorgensen, who is the vice-chair of the environment, public health and food safety committee in the European Parliament, has promised to bring Malaysia’s case on its discrimination versus other oils in the Renewable Energy Directive (RED).
“We don’t want any discrimination at all of the palm oil sector, and we promised the industry here to help have discussions with the EU on this,” he said.
Jorgensen, who was in Malaysia last week with two other Members of the European Parliament (MEPs) Martin J. Callanan and Ole K. Christensen. They were impressed with the work undertaken by the government and the palm oil industry on sustainability efforts.
“People in Europe don’t know how efficient an oil it (palm oil) is. I wasn’t aware myself how much oil you can get per hectare compared with other oils – in that way it is discriminated against,” he added. Oil palms on the average produce 2.5 times more oil per ha than rapeseed.
According to the RED which will come into force in December this year, biofuels must have greenhouse gas savings of at least 35 per cent and according to EU’s calculation, the use of palm oil-based biodiesel failed the requirement as it achieved only 19 per cent.
“We promise to look into the discrimination (claim) and, if there is, we’ll do everything in our powers to change it. The numbers would need to be accurate and based on scientific data,” said Jorgensen.
A social democrat MEP who hails from Denmark, Jorgensen said the EU is committed to the sustainability criteria as it helps mitigate problems of greenhouse gases, climate change, global warming and also biodiversity.
“We’re happy to hear that the industry acknowledges and respects it. They have been discussing how it can become more competitive on the sustainability criteria.”
Jorgensen also suggested that the palm oil industry considers making entrapment of methane gas mandatory to increase the energy efficiency of Malaysia. Palm oil mills are currently encouraged to trap methane gas from palm oil mill effluent.
“We are convinced that the industry has been doing a lot and we expect it will proceed to become more sustainable because palm oil is important for biofuel as well as oil for food,” he said.
The EU lawmakers recognised that palm oil has been the largest contributor of wealth to Malaysia and lends bigger potential compared to the other edible oils.
Christensen also lauded Malaysia for its achievements via oil palm planting in bringing the people out of the poverty bracket, especially in the Felda smallholder schemes.
“Palm oil is not a bad thing as is being perceived by many people in Europe. We are gratified that Malaysia has strict laws in place to make sure no more rainforests are destroyed and expansion is on agriculture land,” said Callanan.
Callanan also does not expect Malaysia to be affected by the RED in the short term as the use of palm oil for biofuel in the EU is still very small.
Malaysia’s ambassador to the EU, Hussein Haniff, who also attended the meeting in Kuala Lumpur, said more outreach programmes were necessary to enable the EU lawmakers to be convinced that Malaysia is not clearing rainforests to grow oil palm. There is also the tendency to lump both Malaysia and Indonesia, the top two producers of palm oil, together.
“We want an equal playing field and they are willing to take up on the verification of scientific data. From what we know, they have outdated data. In the process of review, if they find the default value is not 19 per cent, then it will be good for us to be on par with the other oils,” said Hussein.
Palm oil deserves equal trade opportunities
TRADE in palm oil products should not be victimised by legislation in the European Union (EU), and in Australia, arising from the Western anti-palm oil campaigns, said the Malaysian Palm Oil Council (MPOC) chief executive officer.
Tan Sri Yusof Basiron said that such legislation would be seen as a trade protection measure, which could force the affected countries to relatiate.
Malaysia’s above average performance in habitat conservation of the orang utan and in greenhouse gas emission (GHG), as well as being a net sequester of carbon, deserves recognition, he said.
“We have earned our right to trade. We should not be asked to clean the mess (GHG emission) of developed countries,” Yusof said in addressing the International Palm Oil Sustainability Conference in Kota Kinabalu recently.
He cited the refusal of Russia, a world leader in timber production and export, to comply with the EU-certified timber scheme. Likewise, palm oil should not be singled out for sustainability compliance unless other competing oils are also subjected to similar requirements.
GHG emission is not an issue as Malaysia is a net carbon sink country with more than 82 per cent tree cover provided by permanent forests and plantation crops, including oil palms, rubber, cocoa and coconuts.
Yusof said the Western non-governmental organisations (NGOs) should focus on campaigning for the reduction of GHG emission in their own countries, for instance, closing polluting coal mines.
“How is it that the UK produces 18 million tonnes of coal per year and the NGOs do not seem to notice the GHG emitted but they can detect burning of a few hectares of forest for agricultural conversion in Indonesia 10,000 km away?”
He pointed out that 66 million tonnes of carbon dioxide emitted a year from 18 million tonnes of coal produced in the UK was equivalent to deforestation of 378,000ha of degraded rainforests.
“This is more than double the yearly expansion of oil palm cultivation in Malaysia which in the past involved deforestation of degraded forest land zoned for agriculture.”
Yusof warned that the Western-orchestrated palm oil campaigns could drive small oil palm growers in Indonesia and Malaysia to poverty even as the industry has been trying to raise the earnings of those in Indonesia to US$20 (RM66) a day from US$5 (RM16.50) currently.
The dangers of global warming should not be used to stifle oil palm expansion unless other GHG emitters in the developed countries are equally focused on mitigating GHG emission, such as taking steps to shut down their coal mines.
On the Sarawak peat paradigm, Ramesh Veloo, Paimin Selamat and Shahrir Abdul Aziz from Tradewinds Plantation Bhd listed zero burning, good water management and palm nutrition as important elements to consider in planting oil palm trees in peat soil.
Sarawak has the highest distribution of peat in the country at 64 per cent of the total of 2.58 million hectares. Tradewinds has 75,000ha of oil palms in Sarawak, with the crop grown in both mineral soil and peat soil.
This newstory under the “I remember when…” column was published in New Sunday Times.
Several methods were tried, to limited success, until weevils were brought in from Cameroon to do the job. Several experts shared with TAN CHOE CHOE the story of the bug that has made Malaysia the largest palm oil exporting country in the world.
Malaysia is the biggest palm oil exporting country in the world today because Datuk Leslie Davidson refused to be hemmed in by claims in textbooks that oil palm fruits could only be wind pollinated.
Davidson, who rose to be the chairman of the plantation group at Unilever, Britain, introduced oil palm in Sabah in 1960 when he was an estate manager and opened the Tungud estate in the Labuk Valley.
Although the plants grew well, they did not bear much fruit. Scientists theorised that this was because heavy rain had washed the pollen away.
Davidson was, however, sceptical. As a young planter in Cameroon, West Africa, he had seen bountiful fruits on oil palm plants despite heavy rain. At the time, Johor’s oil palm estates were yielding bigger fruit bunches than the ones in Sabah because they had an insect pollinator — the thrip hawaiiensis.
Without assisted pollination, the weight of fruit to bunch in the Labuk Valley was only around 30 per cent. In Johor, it was about 54 per cent, while in Cameroon, over 65 per cent. “We experimented with hand pollination and achieved standards close to Johor’s, although still not as good as in Cameroon.”
Davidson kept turning over the problem in his mind until he remembered “the little beasties” he saw in Cameroon.
“Davidson asked Unilever to follow up on his hunch and whether those insects pollinating the palms in Cameroon could be brought in to Malaysia,” said Mahbob Abdullah, who was then the general manager of Pamol Sabah under Unilever. Davidson was his boss.
Mahbob said Davidson approached the Commonwealth Institute of Biological Control (CIBC) for their expertise, and got Datuk Dr Rahman Anwar Syed, an entomologist from Pakistan, to undertake the study.
Rahman proved, in a series of experiments, that the oil palm in its original habitat was pollinated by several different insects, the most effective of which was the weevil named elaeidobius kamerunicus. Armed with the results, Unilever’s research head in Malaysia, Dr R.H.V. Corley, approached the Department of Agriculture’s plant quarantine section head, Datin Kang Siew Ming, who was just into her second day at the job.
Kang recalled: “On hearing their story, I sensed the enormous impact these weevils would have not only on Pamol Estate, but the entire oil palm industry. But I was concerned that the weevils would cause damage to the oil palm itself or become a pest to other economic crops.”
Kang’s section enforces the Plant Quarantine Act and Regulations 1961, which controls and regulates the entry of all insects, plants and plant products into the country.
To confirm Rahman’s findings, a delegation led by Mahbob, comprising Kang, Zam Abdul Karim, an entomologist with the Agriculture Department and Dr Tay Eong Beok, the assistant director of Agriculture, Sabah, went on a field trip to Cameroon.
“We had to wake before dawn to observe the weevils’ pollinating activities. Zam and I took turns climbing onto selected palms. We saw the comings and goings of several weevil species and were convinced that the elaeidobius kamerunicus was the best pollinator,” said Kang.
It was also found that the weevils had evolved with the oil palm plants and developed a very synergistic relationship with them. After being briefed on the findings, the then director-general of agriculture, Datuk Ahmad Yunus, issued an import permit for the weevils.
They were immediately taken into the quarantine insectary at Jalan Gallagher.
The 1,044 pupae were the remains of the 2,000 pupae sent to London for intermediate quarantine checking at the CIBC labs.
Although they spent only one day in London, the journey proved too long for the creatures to remain as pupae. Some adults had emerged and all were examined by Kang and Zam for possible contaminants.
“Only about 400 vigorous ones were selected. The rest were destroyed,” said Zam. “We also tested them with some common pesticides. We needed to be ready to kill them in case anything went wrong,” she added.
After some six months of testing, Zam and Kang were finally satisfied the insects would bring no harm and their results were presented at a meeting of experts from various research agencies. They obtained final authorisation to release the weevils for commercial use at Uni-Pamol Malaysia’s Mamor Estate in Kluang, Johor.
“Rahman and I packed one insect-cage of male oil palm spikelets full of weevils and then he drove us from the insectary to Mamor estate under Uni-Pamol Malaysia in the early morning of Feb 21, 1981.”
In the presence of Corley and many other Pamol staff, Rahman held the cage, Kang slid open the cage door and the weevils flew out to make their new home in Malaysia.
“I remember Rahman wishing them, ‘God bless you in your new home!’, as he observed the cloud of flying weevils heading for the oil palms. They had been his constant companion for almost three years,” said Kang. “The weevil is a hardworking insect. The weevil population exploded after they were released in Mamor.
“Soon, the weevils were taken to other countries and they have helped with the growth of the industry in Indonesia, Thailand, Papua New Guinea, Solomon Islands and India,” said Mahbob.
In Sabah, the insects were released by Rahman on March 13, 1981 at the Pamol estate in Labuk. Since then, Sabah has overtaken Johor as the biggest palm-oil producing state in Malaysia.
Bill Durodié, who resides in Singapore is the author of this commentary published in the Jakarta Post. He is a senior fellow in the Centre for Non-Traditional Security Studies of the S. Rajaratnam School of International Studies at the Nanyang Technological University.
Campaigns against big pulp and palm oil producers in Indonesia appear to be driven by local activists on the ground. In reality, they are facilitated by huge budgets and shaped by agendas emanating from the West.
Pulp and paper production is big business. So too is palm oil.
Steady global demand for paper and packaging, combined with increasing interest in bio-fuels and replacement fats for the food industry, have made these some of the largest and fastest-growing industries in Southeast Asia.
Indonesia and Malaysia alone, now account for 85 percent of world palm oil production, and their share of the wood, pulp and paper business is rising rapidly too. There are good reasons for this. Aside from access to low-cost labor, the fact is that biomass simply grows faster in the tropics than in North America or Europe.
Such developments are not without their problems. Struggles between firms for a lucrative market can be intense. Competitors from other sectors and regions may be willing to support any argument that discredits their rivals. And Western governments are concerned that these advances put them at a disadvantage, too.
On top of this, numerous environmental activists and community campaigners have emerged in recent years accusing these industries of ignoring land rights, polluting waterways, logging illegally and contributing to global warming. These have now attracted the attention of the media and regional policy-makers.
A recent BBC documentary that explored deforestation issues in Indonesia, led Unilever — one of the largest food manufacturers in the world — to launch a supposedly independent review and then terminate contracts worth tens of millions of dollars with its suppliers there. For a developing country, this is a significant set-back.
From the corporate perspective it may appear as if producers are trapped in a conflict with a swarm of Lilliputian detractors — well-intentioned but misguided, energetic young people, from countless non-governmental organizations.
They fly paragliders and helicopters over plantations on reconnaissance missions, build dams to prevent effective soil drainage, and foment resentment towards business among local communities, international agencies and eventually the companies own customers and host governments.
Some firms, seeking to prove otherwise, have sought to be seen to be acting in a more responsible fashion. They have hired security contractors to prevent illicit tree-felling on their concessions. They have supported schemes to tag wood. They have established schools and clinics to ensure local communities benefit from their activities. They have even handed-over land to establish nature reserves.
But in reality this is to view the situation upside-down. Eco-warriors are a manifestation of the problem, not the problem itself. Their tactics — to presume guilt by documentation rather than by factual evidence — first emerged elsewhere. And far from being small and disconnected, they are simply the visible expression of a far more coherent, but invisible force.
Among world leaders, confidence in the economic system today is threadbare. In addition to declining political support and legitimacy, contemporary elites in the West lack a sense of greater purpose through which to steer world affairs.
The protesters in Indonesia and elsewhere simply reflect this inner loss of certainty. They are indulged to a remarkable extent by multinationals and governments, keen to latch on to anything that appears to offer popular engagement.
Over the last few decades a negative narrative has emerged in the West that presents ambition as arrogant, development as dangerous and success as selfish.
The instigators of this are not the youthful idealists establishing camps in the forest, but disillusioned politicians and officials. They have been supported by an army of writers, academics and social commentators, who seem determined to show that things are always getting worse and that the cause, as well as the victim of this, is human-action itself.
The consequence has been the creation of a cultural environment within which social advancement is viewed with suspicion. Singapore itself has been on the receiving end of this through the recent publication of a report purporting to show it as the worst environmental offender in the world. In reality, this was for having the temerity to develop a city at the equator on limited land.
Far from being involved in a David versus Goliath-like struggle against “big business”, organizations such as Friends of the Earth International are huge concerns in their own right. They do not receive the lion’s share of their income from public donations, as some presume. A cursory look at their accounts reveals them to obtain well-over 80 percent of their funding from foundations and governments.
For instance, the Dutch Ministry of Foreign Affairs funds Hivos — a Netherlands based civil society group with direct links to campaigns in Indonesia — for up to two-thirds of its annual €100 million budget. In its turn, Hivos is listed as a partner to Aidenvironment who, through a former associate of Friends of the Earth, conducted the supposedly independent review of operations in Indonesia that led Unilever to pull-out.
These groups also send teams of Western activists in search of purpose and an identity to discover themselves in the jungles of Southeast Asia. There they interact with local groups — or “indigenous people” as the campaigners patronizingly call them — encouraging these to share their concerns, according to strategies they learnt back home, and with a view to enhancing their credibility.
Whether donors to US-based philanthropic foundations or European taxpayers even know that they are funding other, Western-based NGOs to mount campaigns against businesses in Indonesia is anybody’s guess.
The real problem has been the failure of industry to engage the public in a wider debate over these issues. This has allowed campaigners to seize the moral high-ground by appearing concerned.
Whilst it is a minority of society that engages with these issues, the majority of these are effectively opposed to business and development. And even when they concede the need for the latter, this is always argued for on a small-scale basis.
Small may be beautiful, but the reality is that big is better. It is more efficient and potentially cleaner. In addition, celebrating small, localized production is a means to entrap communities where they are for the indefinite future.
Unfortunately, individual firms are not best placed to make these arguments. They have their own vested interests. But for the benefit of the people of this region and beyond, it is high time a few enlightened individuals sought to establish an organization to represent the needs and aspirations of all.
The real problem has been the failure of industry to engage the public in a wider debate over these issues.
OIL PALM planters in Malaysia are concerned that the proposed hike in foreign workers levy would increase their cost of production and affect their competitiveness.
Labour is the single largest cost component for them, making Malaysia the highest cost producer among other plantation crop producers in the region.
The Malaysian Employers Federation (MEF) and the Malayan Agricultural Producers’ Association (Mapa) have estimated that the proposed increase in levy and security bond for foreign workers would expand the industry’s cost to over RM2 billion from the current RM200 million in levy and security bond.
They expect the higher levy will cost the plantation sector some RM1.17 billion a year in 2015 from the current RM138.4 million, based on 256,382 foreign workers employed in the sector.
“The proposal to increase the existing security bond of RM25O per worker to RM4,000 per worker will cost the industry about RM64.01 million currently, to RM1.03 billion,” MEF and Mapa said in a joint statement issued late last night.
They are responding to the proposal by the Cabinet committee on foreign labour, chaired by Deputy Prime Minister Tan Sri Muhyiddin Yassin to increase levy for unskilled workers by next year. The committee was also weighing the introduction of security bonds to ensure employers are more responsible for their employees.
Government-linked companies involved in the sector include Felda Plantations, Sime Darby Plantation, Tabung Haji Plantations, Felcra, Risda and state-owned corporations.
According to MEF and Mapa, labour is critical for sustainable growth of palm oil sector and the plantation industry is still labour-intensive. The upstream and downstream activities within the plantation sector contributed RM65 billion and RM50 billion in net export in 2008 and 2009, respectively.
“Therefore, the government should not heavily tax and burden this strategic industry. As an example, soya bean and rapeseed oil producers in North America and Europe are given subsidies,” they said.
MEF and Mapa said the hiring of foreign workers contribute significantly to the expansion of the agriculture sector. An oil palm harvester is estimated to contribute RM195,700 a year to the sector, after deducting salary, housing and amenities, medical and recruitment expenses.
“Based on the approximate figure of 230,000 foreign oil palm harvesters, the total contribution per annum is about RM45.01 billion per year,” they said. The proposed hike in levy and security bond would further increase production cost, which could not be passed on to the consumers as plantation companies are price takers and not price setters.
“The government, therefore, should further facilitate and not frustrate the industry. Please let our golden goose continue to lay golden eggs peacefully,” MEF and Mapa said.
BARRIERS to palm oil trade will be a priority item on the negotiating table in Malaysia’s free trade agreement (FTA) talks with the European Union (EU), said Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.
Malaysia and the EU is due to hold its second round of FTA talks next month.
This is written by my colleague, Rupa Damodaran.
CB INDUSTRIAL Product Holding Bhd (CBIP) expects profit to jump by 50 per cent this year on strong palm oil prices and prospects of more estates building and upgrading their palm oil mills.
“We should be doing much better as long as palm oil prices do not drop below RM2,000 per tonne,” managing director Lim Chai Beng said after the company’s annual general meeting in Petaling Jaya, Selangor yesterday.
Its engineering division, which contributes 60 per cent of its total earnings, is expected to improve although it has been affected by currency fluctuations as half of its contracts are quoted in US dollars.
For the first quarter of this year, results also improved by almost 50 per cent to about RM13 million from RM8.5 million previously, Lim said, adding that the second quarter is likely to be better due to the prices. Last year, CBIP posted RM49 million in pre-tax profit and turnover of RM331 million.
CBIP’s has jobs worth RM350 million in its order book till the end of next year, Lim said. “With palm oil prices hovering at RM2,500 per tonne, we can expect strong and promising growth in our engineering division,” he said.
Lim said the economic crisis affected CBIP’s profits last year as plantation companies deferred their milling projects. CBIP offers a range of palm oil mills designed to the requirements of oil palm planters, priced between RM3 million and RM40 million.
Lim said CB Industrial is also making a name within palm oil milling circles in Africa and Central America. It has started construction work on a milling plant in the Ivory Coast and three smaller ones in Guatemala and Mexico.
SARAWAK timber and oil palm giant, TA Ann Holdings Bhd, is to invest RM50 million in a second crude palm oil (CPO) mill this year.
Its group managing director and chief executive officer Datuk Wong Kuo Hea said the mill, to be sited in Igan near Sibu, will have a capacity of 90 tonnes per hour. He was speaking to reporters after the group’s annual general meeting in Sibu yesterday.
Wong said its logging and oil palm divisions were still the main contributors to group profit, contributing 54 per cent and 39 per cent, respectively.
On its oil palm division’s target this year, he said it is to develop another 4,400ha in Igan, Daro and Matu in the Mukah Division.
The group as of December last year had a total planted area of 26,056ha comprising 13,984ha of matured area, 6,699ha of immature area and 5,373ha of young palms. “If the current market price at RM2,300 per tonne for the commodity is maintained, we can expect an even bigger contribution from it this year to our bottom line,” he said.
For the logging division, Wong said it was able to export 63 per cent more logs at 226,601 cubic metres last year, compared to 139,328 in 2008.
“Log prices remained resilient in the year under review and the division revenue was 30.6 per cent higher. India remained the largest buyer, accounting for 70 per cent,” he disclosed.
Meanwhile, Wong Said Ta Ann too had achieved another environmental milestone, when it signed a memorandum of understanding (MOU) with the WWF Malaysia in “Global Forest and Trade Network (GFTN)” on December 8 last year. It became the first public-listed company in the state to support responsible forestry.
“We are going forward in our forest certification. Hopefully, three years from now, we can get our forest certified. Once we have achieved this, our products will be certified as coming from a legal and sustainable source,” he explained.
He said by facilitating trade links between companies committed to responsible forestry, the GFTN would create a market condition that helps to conserve forests, while providing economic and social benefits for the businesses and the people dependent on it.
“In other words, there will be better market connectivity, wider market prospects and product acceptance for Ta Ann through this network of buyers,” Wong said. — Bernama
US AGRIBUSINESS giant Cargill is investing US$50 million (RM165.5 million) in another palm oil refinery and specialty fats plant in Port Klang.
The following news story is written by my colleague, Zaidi Ismail.
Sime Darby Bhd has made its first-ever quarterly loss since the mega-merger, dragged by delays and cost overruns at its energy and utilities division.
The government-linked Sime Darby merged with the then Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November 2007.
My colleague Farrah Naz Karim and boss Shahriman Johari write.
PUTRAJAYA: The Malaysian Anti-Corruption Commission (MACC) has taken a proactive step by initiating investigations into the massive losses suffered by Sime Darby.
Investigations will start with a probe focusing on the internal inquiry being carried out by the conglomerate. The company’s internal investigation, believed to have started some eight months ago, is to determine the real extent of the losses in its energy and utilities division and whether they were anything beyond just making bad investment calls.
There may also be probes into other divisions and projects. MACC investigations director Mustafar Ali confirmed that the commission had started investigations.
“We will be identifying areas that have elements of corruption, misappropriation and abuse of power. Like all cases, we’ll deal with this one with urgency, not only because this probably involves billions of ringgit but also the interests of the people,” he told the New Straits Times yesterday.
MACC had last week offered Sime Darby its expertise in detecting elements of graft but the country’s oldest and largest conglomerate had to date not approached the antigraft body for help in facilitating its investigation.
Until last week, MACC said it would let Sime Darby complete its investigation and would only open an investigation file into the financial affairs of the government-linked company if any element of corruption was suspected in its massive losses.
Sime Darby recently confirmed the market’s worst fears when it announced that it would have to post massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak.
It is expected to post close to RM1 billion losses in its third quarter results, which are expected to be released tomorrow. Sime Darby is also expected to disclose tomorrow the findings of the task force set up to investigate its energy and utilities operations.
The cost overruns were discovered by a board work-group formed in October last year to “assess the corporate governance and performance” of Sime Darby’s energy and utilities division.”
The work-group members are Datuk Seri Andrew Sheng, a member of the National Economic Advisory Council, Tan Sri Wan Mohd Zahid Mohd Noordin and Datin Paduka Zaitoon Othman.
In announcing the losses, Sime Darby also ordered its group chief executive, Datuk Seri Ahmad Zubir Murshid, to take leave of absence. The company has appointed Datuk Azhar Abdul Hamid acting group CEO for the interim period, while the government has assured transparency in any investigation into the company.
This is not the first time the anti-graft body started an investigation into a GLC. In 1996, MACC, which was then known as Anti-Corruption Agency, launched investigations into Perwaja Steel after it was declared insolvent, with debts and losses totalling RM10 billion.
This led to the arrest of its managing director, the late Tan Sri Eric Chia, in February the same year, where he was charged with embezzlement. He was acquitted in 2007 after the Sessions Court ruled that the prosecution had failed to establish a prima facie case against him.
Meanwhile, the Securities Commission (SC) is studying the developments at Sime Darby, which is carrying out a probe after cost overruns of almost RM1 billion for this year alone.
“We are assessing the developments at Sime Darby Bhd. At this stage, the SC prefers not to comment any further,” an SC spokesperson said.
Just two weeks ago, Sime Darby asked its chief executive officer (CEO) to leave as it looked set to book losses of almost RM1 billion for the second half of this year on cost overruns in its energy and utilities division. It made a net profit of RM1 billion in the first half.
Acting CEO Azhar Abdul Hamid indicated in a news report last weekend that there could be more provisioning as it probes further.
This is written by my colleague Rupa Damodaran.
Article written by Lim Shie Lynn, sourced from http://www.palmoilhq.com/
KUALA LUMPUR (Dow Jones) – The CME Group Inc.’s (CME) newly-introduced dollar-denominated crude palm oil futures contract has got off to a slow start with only 12 lots trading overnight in its first session Monday, according to data from the exchange.
The September contract – the only contract to trade during the Globex session – closed US$5.50 higher at US$752 a ton. At 0423 GMT, the contract was trading US$11.75 lower at US$740.25 per ton with only five lots traded so far. One lot is equivalent to 25 tons.
Despite lukewarm interest on debut, market participants said interest in the contract could grow as agribusiness traders and palm oil refiners start using the contract to hedge and eventually, speculators coming in and adding volume.
“Concerns about the euro-zone debt issues are keeping investors on the sidelines. Otherwise, the palm oil contract on CME would’ve done better on debut,” said S. Paramalingam, executive director at Kuala Lumpur-based brokerage Pelindung Bestari Sdn Bhd.
“It will take a while for volume to grow but there is interest in the contract. It is only a matter of time,” an agricultural broker based in Chicago said via email late Monday.
Increased palm oil usage in the US is also expected to generate interest in the dollar-denominated contract. The US palm oil imports have risen since the beginning of the year, partly due to a ban on the sale of trans fats in several states as well as California’s ban on the use of trans fats in restaurants.
Palm oil is a healthier substitute and does not require hydrogenation due to its semi-solid form, said a company executive at a Malaysia-listed plantation company which ships palm oil to the US.
Palm oil shipments to the US rose to 306,181 tons in the January-April period, up 7.3% on year, data from the Malaysian Palm Oil Council showed. America consumed 859,000 tons of palm oil last year.
“We are pleased there was trading on the first day and know that we have work to do as part of our continuing education efforts on the risk management attributes of the product,” Tim Andriesen, managing director for agricultural commodities at CME Group said via email today.
Another newly launched contract, the benchmark August crude palm oil (CPO) contract on the Indonesia Commodity and Derivatives Exchange (ICDX) also got off to a slow start on its debut Friday, with only 216 lots traded, so far. The August contract was last trading 0.1% lower at IDR6,840 a kg, with 31 lots traded.
Both CME and ICDX palm oil contracts face hurdles as the two are vying for a share of the market which has so far been dominated by the ringgit-denominated CPO futures contract on the Malaysia Derivatives Exchange.
THE move by Indonesia and Malaysia, the top two palm oil producers, to take up the industry trade dispute against the European Union (EU) will clear the name of the commodity, says Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron.
“We have done a study and there is a case against the EU for the way it has formulated the Renewable Energy Directive and that is already against the WTO guidelines,” he said in an interview recently.
There was also a recent report stating that the EU, through its environmental ministries and commissions, is funding up to 70 per cent of the operating budgets of environmental NGOs. Such funding implicates the EU for creating barriers to trade for agricultural products from developing countries.
Plantation Industries and Commodities Minister Tan Sri Bernard Dompok is expected to meet his counterpart in Indonesia later this month on the possibility of drafting a substantive complaint against some of the most developed countries in the EU. “The strategy of these big economies has stacked a lot of issues against small countries like Malaysia, making us hapless.”
Many of these issues were used by the environment NGOs to dispute the sustainable agricultural practices of oil palm growers in Malaysia to take the “heat” off the European oils like rapeseed which enjoys subsidies.
Yusof, who has been pursuing the Malaysian fight against the European environment NGOs for their allegations, admitted that it could probably take years before the results are seen. “In the meantime, we will take all avenues to correct the inaccuracies about the commodity.”
One important fact which Malaysia and Indonesia want to stress is palm oil’s ability to supply a vital food component to billions of people around the world while providing millions of jobs and income to small farmers and plantation workers.
Deforestation is also another area which Malaysia has found some allegations unfair and unfounded. “Why should we be dictated when other oils are not working sustainably and, instead, continue to be given preferential treatment while in countries like Canada there is still deforestation going on.”
Malaysia still maintains 56 per cent of its total land area under forest, thereby keeping its pledge made at the 1992 Rio Summit to keep at least half of its land as forests.
EU envoy: Malaysian CPO exports not affected
THE sustainability criteria in the European Union (EU) Renewable Energy Directive (RED), due to come into force on December 5, will not affect Malaysia’s palm oil exports to the region.
EU ambassador and head of delegation to Malaysia Vincent Piket said there will be no change for crude palm oil (CPO) imports. “The EU will not block any Malaysian CPO exports. Exports into the EU can continue just as they are today, with no new tariffs, quotas, restrictions or conditions,” he said in Kuala Lumpur yesterday.
“The EU RED and its sustainability criteria do not concern Malaysia’s CPO exports to the EU market for consumer products, like food, cosmetics, detergents and so forth. In other words, 90 per cent of Malaysia’s palm oil exports to the EU are in no way affected by the new EU rules,” he said.
Certain quarters have voiced their concern about the EU new directive and its effect on palm oil exporting countries like Malaysia and Indonesia. Piket said the EU RED is an essential element of the climate and energy package to meet the group’s climate change and energy policy objectives.
He said the directive contains a 10 per cent binding target for renewable energy in transport, including biofuels, by 2020. This will provide an opportunity, also for developing countries, to supply biofuels to the EU market.
“With this directive, the EU is creating a new market and we want to make sure that we do it right. It is crucial that the measures to fight climate change and implement the renewable energy policy, including biofuels, do not have negative side-effects on the environment,” he said.
Piket said it is for this reason that the directive contains sustainability criteria for biofuels. The sustainability criteria are related to two issues – the lifecycle greenhouse gas emissions of biofuels and the land used to produce the biofuels. “They aimed to achieve significant greenhouse gas savings compared to fossil fuels and prevent negative side-effects on biodiversity,” he said.
Piket said the sustainability criteria used by the EU RED were science-based, verifiable and in accordance with the World Trade Organisation principles. “The criteria will be the same across the EU. They will apply to both EU production and imported biofuels,” he said.
The EU RED foresees incentives for sustainably produced biofuels, though biofuels which do not meet the criteria can still be imported and marketed in the EU, Piket said. “They will not, however, receive tax exemptions, subsidies or other incentives from EU member states, nor will they count towards the objective of 10 per cent of renewable energy in transport.”
According to Piket, it is important for Malaysia to note that there are incentives for sustainably produced biofuels. The EU RED, he said, is exclusively about trade in biofuels. “The EU countries will be offering incentives to promote the use of sustainably produced fuels, including biodiesel,” the envoy said. – Bernama
JAKARTA, May 21 (Reuters) – The Indonesia Commodity & Derivative Exchange (ICDX) launched its crude palm oil futures on Friday, but analysts said its rupiah denomination may limit trading interest to local players.
The contract was Indonesia’s second attempt at creating a local price benchmark to rival Malaysia’s crude palm oil futures. “It is not easy to launch a futures contract because we have to convince people to trade here,” said Deddy Saleh, the head of the commodity futures exchange supervisory body.
“But we expect the contract will be liquid.” ICDX’s August CPO futures contract closed at 6,840 rupiah (US$0.740) per kg on Friday, compared to 7,020 rupiah per kg when it opened. Market volume was 115 lots of 10 tonnes each.
Megain Widjaja, ICDX’s managing director, said the exchange expected trading volume to gradually grow to about 1,000 lots by the end of June.
“It is not easy for an exchange like this but if all market players participate, it will make the exchange more liquid,” Widjaja said. “I’m optimistic the volume will grow to a minimum of 1,000 lots or 10 percent of Bursa Malaysia’s volume by the end of next month,” he said.
Analysts have said the exchange may struggle to increase liquidity where there is a much smaller investor base and a lack of regular palm oil industry data to trade.
ICDX said it planned to address the problem by sourcing data from third parties.
While players prefer to wait and see whether the exchange can build up liquidity, analysts said the Indonesian exchange would attract mainly local players rather than foreign investors.
“It may attract Malaysians who have Indonesian business and buy CPO from Indonesia as they can actually take tenders in Belawan or Dumai port,” a trader in Kuala Lumpur said. “But again since the contract is in rupiah it may deter foreign players who don’t have business in buying Indonesia CPO.”
Another analyst based in Singapore added investors may look at the ICDX exchange to get information on local prices as well as Indonesian monthly export taxes.
Indonesia is the world’s top palm oil producer with production expected to reach nearly 23 million tonnes this year. — Reporting by Niluksi Koswanage and Karima Anjani. Editing by Sara Webb
The following news article is written by Lim Shie-Lynn and sourced from http://www.palmoilhq.com/
New Palm Oil Contracts Face Tough Times Amid Euro Zone Fears
KUALA LUMPUR (Dow Jones)–New palm oil futures contracts launching on the Indonesian Commodity and Derivatives Exchange (ICDX) and CME Group Inc.’s (CME) Globex platform may struggle to steer interest away from the benchmark contract in Malaysia, traders and analysts said.
Should the new instruments attract only tepid responses, the perception will be reinforced that Malaysia’s derivatives exchange is the only viable place to trade palm oil futures, after a recent Singapore-based futures venture failed to catch the eye of investors.
One reason it may be difficult to attract liquidity is because investors, such as plantation companies and fund managers, will be hesitant to jump into the market, amid growing concerns that the euro-zone debt crisis could curb global economic recovery and crimp interest in the contracts.
“In the longer term, the dollar contract may have better prospects over the Indonesian palm contract in terms of reliability and transparency,” a senior trading executive at a Kuala Lumpur-based commodities brokerage said. “But for now, both contracts may face difficulties attracting interest as markets weaken.”
Many trade participants expect the ringgit to continue strengthening, giving CME’s futures an edge over the rupiah-denominated contract that debuts on the ICDX Friday. The CME contract, which launches Monday, is tied to Bursa Malaysia Derivatives’ ringgit-based benchmark palm oil contract.
“Some palm refiners see CME’s dollar-denominated contract as a good hedge which may reduce currency risk,” a trading executive at a Malaysia-based plantation company said.
Refining margins have fallen into negative territory as the ringgit surged 7% against the dollar this year–making it Asia’s best performing currency–after Malaysia’s central bank raised interest rates.
The CME contract “is a useful tool when (investors) believe currency changes will have an impact on palm oil prices, as this provides them greater flexibility in managing both the commodity and currency risks,” Tim Andriesen, Chicago-based managing director of agricultural commodities, products and services at CME, said.
A second CME official said that close links between palm oil and soyoil may boost liquidity for the new contract.
Historically, palm oil has traded at a discount to soyoil, but the gap has narrowed from $100 a metric ton since last year and palm oil is now trading at a slight premium as output in Malaysia remains weak while the South American soybean crop hits record levels.
“We have seen strong interest in our CPO contract and are hopeful that this interest is indicative of market participation,” Andriesen said. “We will work with our customers on educational efforts to promote this product.”
The new contracts aren’t the first time a challenger to the BMD’s mantle has emerged.
The Singapore-based Joint Asian Derivatives Exchange launched dollar-denominated palm oil futures in 2007, but failed to generate much interest among investors.
The following news stories are written by my boss Mustapha Kamil and colleague Zaidi Ismail.
KUALA LUMPUR: The ongoing internal probe by Sime Darby Bhd to find out how it made staggering losses has now been expanded to cover all its six business divisions.
The probe was previously confined to the conglomerate’s energy and utilities division. Sime Darby’s five other business units are the plantations, property, healthcare, automotive and industrial divisions.
Chairman Tun Musa Hitam said the management and external professionals were now putting the conglomerate under the microscope to weed out any weaknesses before coming up with any short-term and long-term restructuring efforts.
“Work is in progress at Sime Darby. We are being transparent and very serious about it. Let the process of democracy work. I would like to assure the ordinary people, who are majority shareholders of Sime Darby, that nothing will be swept under the carpet. The timeline for this probe is as soon as possible,” Musa said here yesterday after closing the World Islamic Economic Forum, of which he is chairman.
The government-linked company announced last week that it would have to book massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak. Sime Darby is expected to book close to RM1 billion in losses in its third-quarter results, expected to be released next Thursday.
Last week, Sime Darby also ordered its group chief executive Datuk Seri Ahmad Zubir Murshid to take leave of absence. It has appointed Datuk Azhar Abdul Hamid as acting group CEO.
The government has assured transparency in any investigation conducted on the company. Musa said the internal probe might take some time due to the group’s sheer size of more than 100,000 workers and presence in 20 countries.
On calls for him to step down, Musa said he and the entire board would do so only after going through due process and then found guilty.
“To ask me to step down in two or three days is not fair. There is a due process and methodology for me and the board to first go through. To step down, you must first have the basis to do so. Nobody can ask us to step down except for the shareholders.”
Sime likely to miss RM2.5b net profit target
Sime Darby Bhd is facing the possibility of missing its key performance indicator target of RM2.5 billion net profit for financial year 2010 as it prepares to book in almost RM1 billion losses in its third quarter results.
The conglomerate will include losses from ventures in the Middle East as well as the Bakun hydroelectric dam project in the third quarter numbers it will report on May 27.
A poll of 15 research houses came up with a net profit forecast averaging RM2.12 billion for the financial year, taking into consideration the losses. Sime reported net profit of RM2.28 billion in 2009 and RM3.51 billion in 2008.
The net profit forecast for financial year 2010 ranged from as low as RM1.58 billion to as high as RM3.1 billion. Analysts said that many of the forecasts in the higher ranges were arrived at on the assumption of crude palm oil prices remaining high for the rest of the company’s fiscal year.
While Sime Darby conducts a wide range of businesses that include property development, engineering, automotive and healthcare, its plantation division has always been the jewel in the crown. An internal probe at Sime Darby is ongoing to determine the real extent of the losses, and it is understood that the probe could be extended beyond its problematic energy and utilities division.
Amid the probe, there were more calls from outside for Sime Darby to look also at its current business structure and company executives did not discount the possibility of the group shedding some of its fat later.
The Sime Darby of today was the result of a merger between the then Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November 2007. The merger had its critics, but its proponents argued that the exercise was to create economies of scale.
The Minority Shareholder Watchdog Group issued a statement yesterday, saying it was common knowledge that many investors bought Sime Darby shares mainly for its plantations business, which contributed to 70 per cent of the group net profit in 2009.
Prime Minister Datuk Seri Najib Razak said yesterday that Sime Darby should first find out why it had incurred the losses before any issue on responsibility was to be raised. “We need to investigate cause of the losses first. We can’t do anything about the question of responsibility at this point in time,” Najib said at a function in Kuala Lumpur.
My boss, Mustapha Kamil, writes.
The Malaysian Anti-Corruption Commission (MACC) will open an investigation file into the financial affairs of conglomerate Sime Darby Bhd if any element of corruption is suspected in its massive losses.
”If Sime Darby doesn’t have the experience on how to pinpoint corruption, they can ask for MACC’s help,” he said yesterday.
Sime Darby recently confirmed the market’s worst fears when it announced that it would have to book in massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak. It is expected to book in close to RM1 billion losses in its third quarter results, which are expected to be released on May 27.
In announcing the losses last week, Sime Darby also ordered its group chief executive (CEO) Datuk Seri Ahmad Zubir Murshid to take a leave of absence. It has appointed Datuk Azhar Abdul Hamid as acting group CEO for the interim period, while the government has assured transparency in any investigations conducted on the company.
Meanwhile, sources said that an internal probe started some eight months ago had extended its scope of investigations into determining the real extent of the losses and whether they came about from anything beyond just making bad investment calls.
While losses identified so far came from its energy and utilities division, the sources did not discount the possibility that the probe may also look into other divisions in the group and, possibly, other projects.
On Bursa Malaysia yesterday the Sime Darby stock shed another 8 sen to close at RM8.18. The stock was trading at RM8.65 when the company called for it to be suspended prior to last week’s announcement of the losses.
This is written by Dr Charley Chan Chin Cheung, who was director of Sime Darby Bhd from 1974 to 1992.
POOR Datuk Seri Ahmad Zubir Murshid, I sympathise with his present predicament. He was not the first executive of Sime Darby Bhd to be mired in circumstances which went beyond his control – the force of historical circumstances which dated back to November 1976.
All these began on January 2 1972 when I proposed to a high government official that Malaysia would be well-placed to have a conglomerate of its own at the inception of the New Economic Policy (NEP) conceptualised by the team led by the Father of Development, Tun Abdul Razak, a statesman.
At that point, I had not the faintest idea what it was all about. All I knew was that my Malay contemporaries were very keen to do business. They grew up with me in the environs of higher education in the UK in the 1950s.
We were all fired up with the things we could do in a socio-economic way. Eventually, we all returned and I by force of circumstances became a planter. Then, I could see my Malay friends were quite poor compared with myself.
Also, I realised the British dominated the banking, the plantation and tin mining sectors because the biggest rubber estate owned by a Chinese then, was only 7,000 acres and the non-Malays from the urban areas did all the menial business and the hard and unrewarding work at the leading edge of the nascent ‘independent’ Malaysian economy.
The change came with the NEP, which promised to give all Malaysians a new beginning. I thought without a huge business entity controlled by the Malays with the co-operation of the non-Malays, we, the Malaysians, would be mired in unhealthy competition socio-economically among ourselves, which would lead to self-destruction because 70 per cent of the Malaysian economy at that point was still controlled by the British, not the Chinese.
We would be getting at each other’s throats for third class assets. Without Sime Darby which eventually became the flagship of Permodalan Nasional Bhd, non-Malay billionaires, some of them foreigners, would not be created during the NEP period.
Hence, I proposed that a Malaysian owned and managed conglomerate should be established or acquired. By chance in October 1973, Sime Darby was involved in its first scandal concerning its chief executive and Pernas Securities moved in with the tacit support of the Minister of Finance and the Prime Minister who both had this great foresight to do what was best for Malaysia on free market terms. This was their finest hour to agree to take-over a British conglomerate at fair market prices.
Arising from this proposal, Tan Sri Taib Andak, the chairman of Maybank and myself were appointed as non-executive directors of London-based Sime Darby plc in October 1974.
But, at that time, there was not much money available for the Bumiputeras. Without informing anyone, I managed to garner the support of important investors residing in a neighbouring country who entered the fray and helped us to win against all odds by November 1976. During this period the British were at their weakest being beset with political turmoil, by the weak pound and a disinterested City in ex-colonial assets. Malaysian control was achieved with a few million ringgits, about RM23 million.
Unfortunately, at the crucial moment, Prime Minister Tun Abdul Razak passed away.
Then, my view was who pays the piper calls the tune. In other words, Malaysians should be put immediately in place to steer this great ship with a purpose what some national sovereign funds only set out to do in the 21st century.
But from this point onwards, no one asked me for my views and this was the theme of the executive management to the day I was asked to resign 18 years later by the executives who benefited from my concept. It was all fine and dandy if there were no financial mishaps. The executive management reigned supreme over the Board to this day. This anomaly must now be rectified in the interests of the shareholders. This is not ethical and more.
The management was not Malaysianised until 1982. By 1982, the best assets of Sime were sold in haste e.g:
1. The beverages firm Shaw Wallace of India, an Indian monopoly, with the valuable Assam frontier tea-estates. It is believed the son of the purchaser became a billionaire of India and owns the Kingfisher Airline.
2. The two Orchard Towers, Singapore which are still standing even though the management urgently advised with photos that these would collapse any moment and had to be sold back to the contractor for S$23 million quickly.
3. The Amoy Canning land in Hong Kong, which Sime tried to auction off but failed due to the fact that only the Hong Kong government auction-off lands to balance its books. Eventually, a joint venture was formed with a member of the property syndicate operating there. This property became the MRT terminus!
And only the 200,000 acres of plantation remained. Lastly, Wisma Sime Darby does not belong to Sime because the company had no money at its completion in early 1980s as the board was told.
In 1981, a foreign business paper reported that I was instrumental in helping the sale of Benta Bhd to a well-known gentleman. Unfortunately, I took legal steps too late to clear my name. The famous Singaporean lady lawyer told me that I was a non-starter.
In 1982, as a director of Consolidated Plantations Bhd, I proposed that Sime should enter the China palm oil market. But only a small palm oil refinery was established at Port Said, Egypt. In fact, in 1972, at another institution I was urging my colleagues to take note that eventually, palm oil would overtake petroleum in the years ahead for Malaysia. By the early 1990s, all the vital port facilities in China were controlled by other Malaysian palm oil producers but not Sime. We went west instead of east. And sometimes, Sime’s physical stock of palm oil was sold to traders who were caught short.
In 1990, I heard in the market place and from friends who gave me a quizzical look that the well-known gentleman who purchased Benta in 1982, acquired a parcel of plantation land from Consolidated Plantations known as Bukit Berutong for RM4 million. I asked the executives in charge why this sale was not presented to the board for approval and was told that since the sale was so minuscule, less than 2 per cent of the total assets of the company, there was no necessity to do so. From the gentleman, this property was warehoused in a public-listed company and finally sold at the top price of RM88 million.
Ironically, The Edge expose of Sime dated May 17 2010 also carried the story of the disgraceful state of affairs at Bukit Berutong. I also asked the executives why the valuable property was not sold to Sime-UEP. There was no answer.
In 1992, I was requested to sign a board resolution authorising the purchase of an oil palm estate in Sabah which no one wanted for many years, for a sum of RM32 million. This money was used to purchase the Sabah Shipyard for RM22 million. I refused to sign because as I was knowledgeable about the plantation industry and was aware that this plantation was hawked around for much less for many years previously.
I was asked to resign the following day by the executives. In 1974, the late Tun Abdul Razak and Tengku Razaleigh supported me, not Tun Tan Siew Sin who had died in 1989.
Thereafter, the Sandestin Golf Resort, Florida, was purchased for US$72 million and it was reported in the press that the purpose was to train Malaysians to manage hotels even though the MARA college was already founded in the 1960s. After the crash of 1997, Sime announced that the resort was sold for the same sum in ringgits arising from a depreciated ringgit. The loss in US dollars was not announced.
A bankrupt British refrigerator company was purchased and an attempt was made to revive it in the Philippines. I believe it was written off together with an investment in Mindanao.
And then came the cataclysmic events of 1996.
In the early 1990s, I travelled across the Atlantic by Serendipity Air and sat next to a German gentleman who claimed to be the head honcho of the family business of Hitler’s chief spy. I asked him why he did not travel by Lufthansa. He told me that for every US$100,000 he spent with this airline, he got a kick-back of US$30,000. His comment struck a bell in my mind as I noticed that someone was always encouraging the top executives to fly by Serendipity Air.
And Sime through its benevolence followed the executives of the travel division overseas where it has become a favourite watering place for privileged Malaysians connected with Sime. I heard they are doing great things via Hong Kong and other parts of Australia without fanfare. It is a small world!
Sime Darby was unfortunately caught by the historical circumstances which surrounded its early promise at the beginning. From November 1976 to the present, its leadership was provided by the executive management which enjoyed its magnificent perks. It takes a company to develop its own culture over a period of at least 10 years.
Somehow, this did not succeed as in Sime. Apart from its beautiful advertisements, Sime’s real core business is in its plantations with attempts at financial engineering from one company to another to create profits. Thus, Consolidated Plantations was hollowed out and had to be sold as a shell for whatever the reason!
Any analysis of Sime will show it did not do anything since 1976 but was embroiled in scandals of seismic proportions after 1992!
The real substantial shareholders had no say. Because of this, once anything goes wrong in Sime, it goes very wrong. It pays to have a look at divisions where it is difficult to control usage, buying and selling or overseas. The travel business is one of the most difficult to manage and control because it is a cash business from which Sime should keep clear and has no reason to sully its reputation.
The real purpose and the contribution Sime could make to the corporate life of Malaysia were that it could have acquired worthwhile international companies overseas during the 1970s and 1980s. It was alleged that 10 per cent of Harrisons Crosfield was available for Sime to control this conglomerate world-wide which would have provided valuable expertise in engineering and other fields for training and transfer.
But somehow, we ended up owning the Golden Chersonese estates in Kelantan for a similar price. The lucky person who was involved, retired to the Scottish Highlands to shoot pheasants.
In my wildest dreams, I did not expect Sime to undertake directly such stupendous engineering works and before this, owned a commercial bank which went bankrupt.
As a born optimist, I say Sime Darby is still the valuable company which the late Tun Abdul Razak and Tengku Razaleigh envisioned it to be – a major flag bearer of Malaysia overseas. It must undertake to do the right business tasks with the right business personnel – round pegs for round holes, square pegs for square holes.
The business focus of the company has to be reviewed in line with the socio-economic environment at its base and its colourful historical past, notwithstanding the vital and living world in which we do business to make money. To take a quantum step in catching up, Sime has to cooperate with others or own specialist companies without losing sight it has to contribute to the uplift of all Malaysians in terms of transfer of knowledge, jobs and a reasonable return to its shareholders in a business-like manner with transparency.
It definitely should not compete with local business entities as far as possible e.g. property development, motorcars, travel, vegetable gardens, etc. This was not my vision at all times from 1972. Sime has better businesses to do overseas. And greenfield projects should be avoided because many shareholders are Trusts. Decisions should not even reach the risk management stage as information is readily available in today’s world.
By this normal approach, Sime Darby will be recognised world-wide unlike now, a bull-frog in a small pond which only has a feel-good feeling by its wonderful advertisements expounding maybe non-existent overseas businesses which should all be closed down!
In passing, the chief executive of another conglomerate rang me up and said, ‘Doc, I think we should buy a yacht to entertain our principals,’ I replied, ‘Sorry, Tommy, I am not into yachts for self-entertainment but if the other directors agree, I have no objections.’ I did not hear from him again.
Not too long afterwards, I was standing by the Star Ferry, Hong Kong, one winter in the early 1990s. A huge yacht berthed beside me. Two young expatriate families disembarked with an Indian butler and matron in attendance. At the aft, below a huge Hong Kong flag, I saw the words ‘Sime Darby’. I did not know Sime had a yacht. Later, I asked the management why we have a yacht in Hong Kong and I was told this was one way to make the expatriate staff happy.
The question which logically arose in my mind was what did the management do to make the directors and the shareholders happy! In the 1980s, it was alleged that the governor of Hainan Island and two local Hong Kong employees went to jail for illegal business activities.
It is never too late for Sime Darby to do serious business to support, contribute and work within the policies of Prime Minister Datuk Seri Najib Razak and his 1Malaysia Concept for the good of the country and the company’s shareholders.
It can be done if Sime is focused on its responsibilities to the nation and its shareholders.
“Wilmar’s announcement says it all. Nowadays, people can claim anything,” PPB chairman Datuk Oh Siew Nam said after the company’s annual general meeting in Kuala Lumpur yesterday. Also present were managing director Tan Gee Sooi and chief financial officer Leong Choy Ying.
Oh was responding to reports that some of Wilmar’s Indonesian units are being investigated over questionable and fictitious value-added tax restitutions.
Wilmar told the Singapore stock exchange that its Indonesian units, collectively the biggest exporters of Indonesian palm oil, are and have at all times been complying with all relevant Indonesian tax laws.
The statement also revealed that Wilmar’s Indonesian units collectively export more than US$3 billion (RM9.7 billion) worth of palm oil annually in 2007, 2008 and 2009. These companies received restitutions of varying amounts over the years, which correspond directly with the actual quantum of cost of export sales, consistent with the permitted amount claimable under Indonesian value-added tax laws.
Since the tax fraud allegation surfaced two days ago, PPB Group shares have fallen by 7 per cent to RM16.60, the most in 10 weeks.
Separately, Oh confirmed that the group sold a piece of land on Jalan Perak next to Wisma Hong Leong. “We sold it to a local company and we don’t know who is behind it. The agent didn’t tell us and we didn’t bother to find out. We were offerred RM2,200 per sq, it was a good price with a guarantee. We’re happy and the deal was made.”
On the group’s outlook, Tan said it will start to produce and sell sandwich loaves and buns from its new RM100 million factory in Port Klang. This new business will compete with other bread brands like Gardenia, High 5 and Mighty White.
Earlier this year, PPB Group completed the sale of its entire stake in two sugar units and land used for sugar cane cultivation to a unit of Felda for RM1.29 billion. Its first-quarter results will reflect a RM830 million gain from the sale.
SINGAPORE/JAKARTA, May 18, (Reuters) – Wilmar International Ltd, the world’s biggest listed palm oil firm, denied media reports that it had colluded with tax officials to obtain fraudulent tax refunds for its operations in Indonesia.
Two Indonesian newspapers, quoting Indonesian lawmaker Bambang Soesatyo from the Golkar Party, said Singapore’s Wilmar had received or was due to receive total “questionable” tax refunds worth 3.6 trillion rupiah (S$385 million) over the three years from 2007 to 2009.
Wilmar, which has a market value of around S$30 billion, in a statement to the Singapore stock exchange said the reports were “untrue and unsubstantiated” and its Indonesian units “are and have at all times been in full compliance with all relevant Indonesian value added tax laws”.
“The subsidiaries have received restitution of varying amounts over the years, which correspond directly with the actual quantum of cost of export sales, consistent with the permissible amounts claimable under Indonesian value-added tax laws,” Wilmar said.
“The company categorically denies the allegations that the value added tax restitution claims are questionable and fictitious, and further categorically denies any allegation of collusion with tax officials referred to in those reports.”
The Jakarta Globe and the Jakarta Post reported Soesatyo as saying that the initial allegations were contained in an internal tax directorate report that said Wilmar manipulated its financial statements and then co-operated with someone in the tax department to approve the rebates.
A senior Indonesian tax office official said the claims made in the media reports were unsubstantiated. “I believe the claim is unsubstantiated. (They) cannot just make these claims, they have to provide some evidence,” Iqbal Alamsyah, communications director at the tax office, told Reuters in Jakarta.
Wilmar has oil palm plantation assets in Indonesia and Malaysia and plans to start a sugar plantation business on Indonesia’s Papua island. The company said its Indonesan units were collectively the biggest exporter of palm oil in the world’s largest producer of the commodities.
“These subsidiaries collectively exported more than S$3 billion worth of palm oil in each of the last three financial years, thereby entitling these subsidiaries to claim the 10 per cent value added tax paid on the cost of these sales for each of those years.”
The allegation came as the country’s tax authority vowed it would continue a tax investigation into Indonesian coal miner PT Bumi Resources, in what is seen as a litmus test of the government’s commitment to reform. Bumi Resources is owned by the family of Golkar chairman Aburizal Bakrie.
Macquarie, in its research note to investors, said it liked Wilmar’s solid execution and has been looking for a lower entry price for a better return profile for investors – and this saga is creating that opportunity. “We upgrade the stock to ‘Outperform’ from ‘Neutral’, on an unchanged target price of S$7.10.”
Credit Suisse downgraded Wilmar to ‘Underperform’ from ‘Neutral’ and cut target price to S$5.70 from S$6.88 It sees a misunderstanding between Wilmar and the tax authorities, but we believe that Wilmar’s share price will underperform until the issue is cleared up, which could take months. – Reporting by Harry Suhartono, Gde Anugrah Arka and Dicky Kristanto, Editing by Will Waterman
NESTLE S.A., the world’s biggest food company, will resume buying palm oil from PT Sinar Mas Agro Resources and Technology if the independent audits show Greenpeace’s allegations of deforestation are baseless.
In April, Sinar Mas announced appointment of two independent auditors, Control Union Certification and BSI Group, to address claims that its operations contribute to deforestation. The audit is in process and Nestlé is part of the committee overseeing this audit.
“If Sinar Mas, or anybody else, does a proper job on quality and traceability…of course we will buy from them. Once the audit is completed, we’ll decide then,” Nestlé executive vice president of operations Jose Lopez told reporters at a Palm Oil and Biodiversity forum in Petaling Jaya yesterday.
Nestlé has done responsible sourcing audits to ensure compliance to its Supplier Code since 2009 through a Supplier Ethical Data Exchange which enables businesses to share ethical data on their supply chains. It buys 320,000 tonnes of palm oil — roughly 0.7 per cent of global production.
An active RSPO member, it pledges to source all of its palm oil needs from environmentally friendly sources by 2015. Currently 18 per cent of its palm oil purchases are certified sustainable and this is expected to hit 50 per cent by the end of 2011.
Also present at the forum were Malaysian Palm Oil Council chief executive Tan Sri Yusof Basiron, WWF-Malaysia chief technical officer Surin Suksuwan, Roundtable on Sustainable Palm Oil (RSPO) secretary general Dr Vengeta Rao and United Plantations Bhd group manager of human resources, environment, safety and health C. Mathews.
The forum was moderated by television station Astro Awani anchorman Kamarul Bahrin Haron.
YORK, England, May 14 (Reuters) – Nestle SA, the world’s biggest food group, plans to grow its market share in the 4.5 billion pound (US$6.6 billion) UK confectionery market each year despite rivals getting bigger and more competitive.
The KitKat and Aero bar maker aims to gain share although it faces a new Kraft and Cadbury combination, and hopes to safeguard 2,000 UK jobs as the industry comes under intense pressure as its key raw material, cocoa, hits 32-year highs.
Nestle’s head of UK and Ireland confectionery David Rennie plans to grow his share up to 0.2 percentage points a year from 16 per cent although its rivals Kraft and privately owned Mars have made acquisitions to heap the pressure on the Swiss group.
“We aim to grow the business with steady market share growth of 10 to 20 basis points each year,” Rennie told Reuters in an interview on Friday at its York plant in northern England that churns out one million KitKat bars a day.
Kraft took the lead in the UK market when it swallowed Cadbury earlier this year, boosting its relatively small 2 to 3 per cent share to around 30 per cent, while Mars after chewing up Wrigley in 2008 pushed its market share to 24 per cent.
“The two moves have concentrated the players, but not concentrated the brands. Consumers still have a similar number of brands to choose from,” Rennie said.
The strengthening of its two bigger rivals with more marketing muscle and distribution reach along with soaring cocoa prices have put a microscope on costs, but Rennie does not see big job cuts like those made in 2006 to remain competitive.
“Cocoa prices are very high and the market is very competitive but I am not looking to cut jobs to allow myself to compete,” he said. Cocoa prices doubling over the last three years to around 2,400 pounds a tonne have put massive pressure on the business with modest price rises unable to absorb the cost increase.
The commodity has been pushed higher by tight supplies from major growing nations like the Ivory Coast, an anticipated upturn in demand as the world comes out of recession, and speculative buying. “Cocoa is at a historic high level and the indications are that it will stay high for a while, with no big decline anticipated in the next 6 to 12 months,” Rennie said. “There is massive pressure on the business and had we not done massive restructuring 3 to 4 years ago it would have been very tough,” he added.
Nestle went through big restructuring since acquiring Rowntree in 1988. Four years ago, it cut a third of the staff in York and now employs about 2,000 confectionery staff across York and three other sites.
Rennie’s focus is on his “magnificent seven” brands — KitKat, Aero, Smarties, Milky Bar, Quality Street, After Eight and Rowntree’s — which account for 70 per cent of his sales, largely produced from Nestle’s four northern English plants.
With UK industry volumes largely flat in recent years, manufacturers have relied on price rises to drive the annual market in the UK by 2 to 3 per cent.
Rennie is looking to KitKat, his fastest-growing brand with high-single digit percent annual growth, and new innovations to drive that growth. Rennie has helped create a multi-million pound brand in 9 months with Randoms, fruit-flavour shapes that are made in a Nestle Czech factory.
Randoms are now Britain’s No. 2 sugar confectionery brand after Nestle’s own Fruit Pastilles, outselling Mars’s Starbursts and Kraft/Cadbury’s Maynards wine gums.
Confectionery is a core Nestle business that makes up 11 per cent of sales, and one in which it ranks No. 3 in the world after Kraft and Mars. The business contains two of its 30 billionaire brands — KitKat and Nestle chocolate — with annual sales of over 1 billion Swiss francs. — Reporting by David Jones; Editing by Mark Potter and Quentin Webb
Reports by my boss Shahriman Johari and colleagues Presenna Nambiar, Zaidi Ismail and Farah Naz Karim.
KUALA LUMPUR: Malaysia’s second most valuable listed group, Sime Darby Bhd, has asked its chief to leave after the conglomerate looks set to book losses of almost RM1 billion for the second half of this year.
Analysts expect its shares to open lower today after the group revealed that it had cost overruns in not one but four projects in its energy and utilities division.
For now, executive vice-president of the plantation division, Datuk Azhar Abdul Hamid, is acting group chief executive officer as the board’s nomination committee looks for a new leader.
“Sime Darby will miss its key performance indicator target and there are concerns on its financial performance in the second half of the year,” said CIMB regional research analyst Ivy Ng.
Sime Darby is booking a loss of RM200 million for its Bulhanine and Maydan Mahzam project with Qatar Petroleum, RM159 million for the Maersk Oil Qatar (MOQ) project, RM155 million for building of vessels for the MOQ project and RM450 million for the Bakun hydroelectric dam project.
However, the conglomerate is still in talks with its clients regarding claims on cost overruns. Sime Darby chairman Tun Musa Hitam said the group’s board of directors found deficiencies in the management of the group’s energy and utilities division after more than eight months of investigation.
The board first set up a three-member work group, headed by Datuk Seri Andrew Sheng Len Tao, in October, following “questionable positions” in the group’s finances last year and the application of corporate governance. What started out as a probe into one project later expanded to another three projects when it found “problems and issues”.
Sime Darby has yet to identify if an element of fraud was involved. Although the work group has submitted its report to the board, Musa said the entire probe was still a work in progress. “Another exercise in terms of action on long-term structural problems that have been identified will be done.”
Part of this will be looking at the management structure, the need for more assistants and having in place proper procedures and a check and balance for management. As to whether Sime Darby would report more similar losses, group chief financial officer Tong Poh Keow said the group had taken the “most conservative stand” and did not expect any more to arise.
At the press conference, Sime Darby said its second-half numbers would be hit by a RM964 million negative impact due to cost overruns in four projects. The group has already booked losses of RM867 million on two projects before. CIMB’s Ng said the provision is much larger than expected and may cause its shares to take a slight beating. Sime stock closed at RM8.65 on Wednesday. The stock was suspended yesterday.
“Sime will miss its key performance indicator (KPI) target and there are concerns about the company’s financial performance in the second half of the year. Sime must also appoint a new group chief executive officer fast because investors don’t like uncertainties,” she told Business Times.
Aberdeen Asset Management managing director Gerald Ambrose, meanwhile, said investors would be surprised that Sime made losses elsewhere and not just at Bakun. “I’m surprised that the management was not aware of it before hand…the market will not be happy.”
Ng said analysts were also kept in the dark because Sime did not call analysts for a briefing. “I don’t blame them because the management might not be able to answer some of the questions and at the time, there is no chief executive to talk back.”
Meanwhile, an analyst at a foreign-owned stockbroking house said Sime shares may not be sold down too much as only 12 per cent are foreign-owned and local funds may buy to take advantage of a lower price.
In Putrajaya, Prime Minister Datuk Seri Najib Razak told reporters that the government has no intention of covering up any weaknesses or losses in government-linked companies (GLC) as it was against the principle of sound corporate governance.
“The roles of the board of directors and management are very clear. Whatever action Sime Darby has taken reflects that they must make decisions that are strict, decisive and transparent,” Najib, who is also Finance Minister, said in Putrajaya yesterday.
A popular line in the corporate world is that about 75 to 80 per cent of all mergers fail. Should Sime Darby Bhd (4197) be in that statistic? The short answer should be no.
But undoubtedly the revelation of almost RM1 billion in losses would not help its cause. The RM964 million hit is enough to almost wipe out its entire first-half net profit of RM1.11 billion and it could hurt its dividend payout for the year to June 30 2010.
Another damage is likely to be its market value. As at May 12, the group was worth RM51.9 billion, making it the country’s second most valuable listed company. It is also quite close to the leader Malayan Banking Bhd, which has a market value of RM53.8 billion.
Its reputation as a major conglomerate would also take a hit as Sime Darby was one of the poster boys of the country’s plan to reform its government-linked companies (GLCs). The group is a combination of three listed groups, the so-called mega merger, of Kumpulan Guthrie Bhd, Golden Hope Plantations Bhd and the former smaller Sime Darby.
In fact, Sime Darby could claim to be ahead of its GLC siblings in the race to become a regional champion by 2010 as per the GLC transformation schedule. In 2009, more than two-thirds of its revenue came from abroad. Founded in 1910, the group employs more than 100,000 people in over 20 countries.
So far, what we know now is that there have been questionable decisions related to corporate governance and these mistakes, which are being probed into, would lead to a big hit in its finances. The probe is centred in its energy and utilities division. The board started to probe one project but more questions surfaced on two others.
But the board doesn’t plan to initiate a group-wide probe. This is rather unfortunate because minority shareholders would probably be concerned that if corporate governance was poorly exercised in one division, what about the four other core businesses? Sime makes most of its money from its plantation business but it also has interests in property, motors, industrial equipment and healthcare.
The board should establish that it has nothing to worry about from all its other businesses. It has already hired six outside consultants of legal firms and auditors, so it could ask them to expand their checks. Sime chairman Tun Musa Hitam said there was no basis to check other divisions because there is no basis to do so. In other words, no alarm has been raised.
But using a simple analogy, if a room in our house catches fire, we would put it out and check the rest of the house because the same thing could also happen in other rooms.
Datuk Seri Ahmad Zubir Murshid has now paid the price because the losses came under his watch as group chief executive. But what about the board?
There are those who are drawing a parallel to what happened at Maybank and how the lender’s board have changed since reporting losses from the purchase of its Indonesian bank. The board is the ultimate caretaker of a company as it work to protect the interests of shareholders. This means that they are also responsible. At the very least, the directors need to offer their resignation.
Oil palm planters want the government to appoint Tun Dr Mahathir Mohamad and Tun Dr Lim Keng Yaik as special envoys of the industry to help counter unfounded allegations against the commodity.
Earlier this week, planters from Malaysia and Indonesia, the world’s top two palm oil producers, formed a coalition to deal with intensifying opposition.
Fierce rivalry from competing vegetable oils grown in Europe and North America has seen some underhanded tactics being adopted by developed nations to curb the growth of the palm oil trade. Well-funded activist groups like Greenpeace, Friends of the Earth and Rainforest Action Network from Europe and North America and their affiliates in Malaysia and Indonesia blame the planters for destroying forests and decimating the orang utan population.
“Dr M and Keng Yaik are both sharp and articulate. They can outsmart, outdebate and outtalk all these NGOs who are spreading lies about oil palm planting,” said Incorporated Society of Planters chairman Daud Amatzin, who is also the executive director of Felda Plantations Sdn Bhd.
Dr Mahathir was Prime Minister for 22 years until 2003. Dr Lim was Primary Industries Minister from 1986 to 2004. Subsequently he headed the Energy, Water and Communications Ministry from 2004 to 2008.
Although both Dr Mahathir and Dr Lim have long retired from government service, they continue to participate actively in public lectures and gatherings.
Cargill said it wanted to “set the record straight on the false allegations” by Rainforest Action Network (RAN), which published a report this week looking at how the U.S. firm was operating its oil palm estates on the Indonesian side of the island.
The report signals that green groups are increasingly scrutinising the Minneapolis-based firm, which earlier threatened to delist Indonesian planter Sinar Mas as a key palm oil supplier over allegations of illegal logging.
RAN’s latest report now says that Cargill’s plantations were draining peatlands and practiced open burning to clear land, which pumps vast amounts of global warning emissions into the atmosphere.
“RAN claims Cargill has cleared rainforests…this is categorically untrue,” said Cargill on its website on Thursday. “The entire area where our properties are located in Kalimantan were deforested over ten years ago, which was before we acquired the plantations.”
Cargill owns and operates two plantations in Indonesia and 12 palm oil refineries worldwide. One of its estates in Kalimantan province on Borneo island has an acreage of 32,000 hectares or two-thirds the size of Singapore. Cargill says no peatlands are found on their estates and no rainforests are in the vicinity.
One of the world’s largest privately-owned corporations, Cargill is a key palm oil importer to the US, which annually consumes over one million tonnes of the vegetable oil, or 2.5 percent of the world’s total palm oil trade.
Its key customers who use palm oil include General Mills, Kraft as well as Nestle, which wanted to stop buying from Cargill’s supplier Sinar Mas and directed the US firm to probe its supply chain, green groups say.
Cargill has pledged by end-2010 to buy 60 per cent of its palm oil from planters who belong to the Roundtable on Sustainable Palm Oil — an industry driven certification body that upholds commitments to preserve rainforests and wildlife.
It has stopped buying from another Indonesian planter Duta Palma since 2008 as the firm did not meet Cargill’s environmental criteria. Unilever followed suit a year later.
Industry sources in Indonesia and Malaysia said Cargill coming under fire signalled that environmentalists will not spare any firm regardless of public commitments to produce or source green palm oil, which may potentially slow expansion.
“The palm oil business is like living in a glass house with the green groups throwing stones. Cargill was previously outside but as it got into the plantations it now has to bear with all the allegations,” said one Malaysian planter. – By Niluksi Koswanage
This news analysis is written by national newswire Berita Nasional Malaysia (Bernama) editor-in-chief Dato’ Yong Soo Heong.
KUALA LUMPUR, May 5 (Bernama) — Malaysia’s palm oil industry is worth about RM50 billion annually and chances are that revenue may even touch RM60 billion this year, if current prices remain steady until the end of the year.
That crude palm oil is being sold at RM2,550 a tonne is certainly good news for planters, smallholders and all those associated with the industry.
But then there are detractors. It has been reported that the European Union (EU), through its environmental ministries and commissions, has been involved in funding up to 70 per cent of the operating budgets of environmental NGOs in efforts to paint a not-so-rosy picture about palm oil.
And these NGOs have been viciously campaigning against palm oil imports into the EU, especially for biofuels, says Tan Sri Dr Yusof Basiron, chief executive of the Malaysian Palm Oil Council, who regards this as a “senseless and immoral attack on exported commodities such as palm oil produced by developing countries.”
Writing in his blog, he said, such funding implicates the EU for creating barriers to trade for agricultural products from developing countries. “Unlike the EU, developing countries do not have access to financial resources to fight such government funded vicious campaigns. The eventual outcome will be untold miseries where poor farmers in developing countries lose their source of income as their export commodities are unable to enter the EU market,” he said.
This is something which palm oil-producing countries will have to seriously address if the livelihood of their planters and farmers is to be safeguarded. Almost a million people are directly employed by the palm oil industry in Malaysia.
Interestingly, a campaign by Friends of the Earth to pressure the European Commission (EC) to rule “a tree plantation is not a forest” that restricts the recognition of palm oil as a renewable biofuel in the EU may have failed.
According to a newsletter titled “Palm Oil – Green Development Campaign” produced by Washington-based pro-development NGO World Growth, this means that the EC may classify oil palm plantations as forests, which would therefore meet the sustainability criteria of the EU’s Renewable Energy Directive.
Under the directive, land which used to contain primary forest prior to 2008 but no longer does, cannot be used for biofuel feedstock to meet the EU’s 10 per cent target. It has been reported that the draft guidelines define a “forested area” as “areas where trees have reached, or can reach, at least heights of five metres, making up a crown cover of more than 30 per cent”. They would normally include forest, forest plantations and other tree plantations such as palm oil.
“The EC’s position would therefore recognise that the important property of tropical forests for climate change policy is the high sequestering capacity of tropical foliage, tall wooded plants and multi-decade crop rotation. Short rotation coppice [the practice of repeatedly cutting young tree stems down] may qualify if it fulfils the height and canopy cover criteria,” the newsletter stated.
It would seem that the EC has recognised the environmental benefits of palm oil as highly energy efficient, high yield and economically beneficial biofuel as the oil palm trees sequester or remove more carbon dioxide than other biofuel crops.
Another development that has put palm oil in positive light is research from Wageningen University in the Netherlands which shows that “palm oil is the most efficient energy crop.” The university’s finding is a rejection of environmental NGOs and the anti-palm oil lobbyists who consistently claim that palm oil is unsustainable.
Its research found that palm oil, sugar cane and sweet sorghum are currently the most sustainable energy crops. These commodities also produce “far smaller quantities of greenhouse gases than fossil fuels”. The university’s analysis considered nine different energy crops against nine different sustainability criteria with palm oil coming out on top while biofuel from maize from the United States and wheat from Europe scored far lower.
The report’s author, Sander de Vries, concluded that sustainable sugar canes and oil palms get the most energy per hectare and cause the least environmental damage. De Vries also highlighted a major advantage of the oil palm crop was that, unlike other energy crops, it produces enough residue to power the oil extraction processes.
Another positive development for palm oil took place in the European Parliament recently when Dr Gernot Pehnelt, founder and director of GlobEcon, an independent research and consulting institute based in Germany, released a new study that revealed the prejudiced nature of the EU’s Renewable Energy Directive towards foreign biofuels.
The report, entitled “European Policies Towards Palm Oil: Sorting Out Some Facts,” demonstrated that the assumptions contained in the directive about the ecological impact of foreign biofuels reflected political and not scientific or economic reality. Pehnelt came to the defence of the rich biodiversity in oil palm plantations, their excellent crown cover that oil palms provide and the yield per hectare advantages of this low-energy and low-fertilizer crop.
“Sadly, many of the claims that foreign biofuels, specifically palm oil, are a threat to the environment are seriously flawed, some even completely unfounded,” he said, adding that the side effects of the flawed policies could give rise to political friction and trade disputes to severe economic handicaps for developing countries.
“This new study makes a strong case that the directive discriminates against non-EU producers of biofuels, such as Asian palm oil. Perhaps most importantly, palm oil acts as a substantial driver of economic growth in the developing world, drastically reducing hunger and poverty in regions that actively cultivate this valuable crop.
“It’s time for Europe to not only recognise the energy and environment benefits of palm oil, but also the suffering in low-income, tropical countries that palm oil critics continue to perpetuate,” said Pehnelt, who has been invited by MPOC to speak on “European policies towards palm oil – setting the record straight” at the International Palm Oil Sustainability Conference in Kota Kinabalu from May 23 to 25.
The MPOC says that the conference will feature the latest developments, breakthroughs and technologies related to the sustainable development of the palm oil industry, with a focus on major issues such as Life Cycle Assessment, carbon footprint, sustainable production, certification and branding, biodiversity conservation and the corporate social responsibility of the palm oil industry.
Over the years, palm oil has emerged to have a huge multiplier effect to the Malaysian economy, supporting some two million livelihoods across many sectors. Additional workforce is also required to run downstream activities as palm oil is a versatile commodity. It is not just palm oil, but also palm kernel oil and palm kernel cake, which have different market and applications. Oil palm biomass and methane can also be used to produce electricity.
Currently, there are 600 million oil palms in Malaysia that could be also harvested and converted into fibre products, including medium density fibre boards as well as pulp and paper. Oil palms are also harvested to make furniture.
“Put all this together, palm oil is a very important and vibrant industry, which makes a lot of money for the country,” said MPOC’s Yusof. Malaysia has been working very hard to make its palm oil industry environmentally-friendly and socially responsible. Oil palm is only planted on land designated for agricultural production.
Today, Malaysia still maintains 56 per cent of its total land area under forest, thereby keeping its pledge made at the 1992 Rio Summit to keep at least 50 per cent of its land area under forest intact. It is certainly food for thought for the detractors.
BOON Weng Siew was in his 30s when he was offered a job as an estate manager in Malacca. It was during the height of the communist insurgency and estates were not a safe place to raise a family.
“There were many nights when I heard the sound of gunshots by the SCs who guarded me. Sometimes, they would wake me up in the middle of the night when I was fast asleep because they feared for my safety. They would inform me when it was safe to go back to sleep.”
He said the SCs would tell him that it was just shadows they had fired at in the dark. “But I believe they could have been communists who tried to break into the estate. Looking back today, I am grateful for their service as without them I might not be alive to see United Malacca Bhd (UMB) as a 100-year-old company.
“I am also lucky that I never had an encounter with the communists,” he added, although in 1951, the communists launched an attack on the Selandar division, surrounding the estate quarters and burned down all the buildings.
“They tricked the SCs, who were inside, into surrendering by promising to spare their lives. But they were all executed as soon as they stepped outside.”
He recalled that 99 planters, mainly expatriates, were killed in ambushes during the Emergency. But Boon, himself the son of a planter, was not deterred. He said he never faced problems with the estate workers but had to struggle with a shortage of manpower from 1980 onwards as locals were not prepared “to get dirt in their nails”.
“I remember that I never had to lend money to the estate workers. I believe people back then knew how to live within their means, unlike today,” Boon said when met at the launch of UMB’s coffee table book, The United Malacca Berhad Story: Thriving Through A Century of Changes, recently.
The book was launched in conjunction with the company’s 100th year anniversary. Boon is now the independent non-executive director of UMB, which was founded by the late Tun Tan Cheng Lock, who was also the founder of MCA.
Cheng Lock’s grand-daughter, Tan Siok Choo, who was also at the function, said she did not step into the company’s vast estate until she was about 20 years old when the rubber trees had been replaced with oil palm. “I was impressed with how the oil palm trees were planted in a straight row within the same distance from one another.”
She insisted that she did not receive any special treatment because no one recognised her as the daughter of the big boss (Tun Tan Siew Sin) and the grand-daughter of the founder. Her first visit to a rubber estate, however, was during a school-organised excursion. “It was not my father’s estate. I remember people telling me to keep a lookout for snakes as there were many in estates. Everyone was busy looking down throughout the trip!”
Looking back, she said her family did not allow family members to work in the company until they had proven themselves. “My father discouraged female family members from getting involved in the plantation business.”
But she went on to become a non-executive director, the only one in the family still actively involved in the business. She said her father, Siew Sin, set up the Women’s Aid Organisation in 1979. “He did this with the RM30,000 he received from the Tun Razak Award, for his invaluable contributions to the country.”
Siok Choo, 58, said her grandfather was a teacher at the Raffles Institution in Singapore, his alma mater, when he decided to go into the plantation business.
“His dad wouldn’t let him leave the security of a teaching job, but his mum was a far-sighted woman who insisted he take up the offer. I am really proud of my grandfather. The company is now in the oil palm plantation business, with 60,000 acres of land both in the peninsula and Sabah, when it started out with just 460 acres.”
The photo below is a courtesy of Kuching-based Alvin Leong Photography.
Malaysia and Indonesia may file a complaint to the World Trade Organisation (WTO) over protectionist measures, disguised as environmental concerns and imposed by developed nations and activist groups, against the oil palm industry.
“I’ll be in Indonesia later this month. Although non-tarriff trade barriers are not on the official agenda, I will explore this topic with my counterpart,” Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said.
“We need to find out more about the legal definition of ‘trade barriers’. We need to be sure what constitutes a substantive complaint before we make a joint decision,” he told reporters after opening the Indonesia-Malaysia Palm Oil Meeting in Kuching, Sarawak, yesterday.
One such law in Europe that blatantly discriminates against the import of palm oil is the European Union (EU) renewable energy directive. The directive seeks to restrict the import of palm oil for biofuel use in Europe in favour of the heavily subsidised home-grown rapeseed oil. Adopted last year, the directive will take effect at the end of this year, which means member states must draft their laws based on it.
Dompok’s views echoed that of former prime minister Tun Dr Mahathir Mohamad, who, six months ago at the 2009 Malaysia-Indonesia Economic Seminar, had called on leaders of both countries to be more vocal in their stand at international forums. “If both Indonesia and Malaysia speak out with one voice, it will be more effective. This way, both countries will earn the respect of others,” he said.
Prior to the press conference, Dr Lulie Melling, director of the Tropical Peat Research Laboratory Unit at the Sarawak Chief Minister’s Department, presented her studies on peat agriculture. As early as 2005, findings on greenhouse gas emission from oil palm planting on tropical peat-land published in peer-reviewed environmental scientific journals, “Tellus” and “Soil Biology Biochemistry”, indicated that the planting of oil palm trees on peat soil was not as polluting as largely believed.
Oil palm trees planted on peat soil actually emit less carbon dioxide than those in old forests as there are less fresh litter and root biomass for microbes to feed on and contribute to decomposition.
Also present at yesterday’s event were representatives from the Malaysian Palm Oil Association (MPOA), Indonesian Palm Oil Association, or Gapki, Association of Plantation Investors of Malaysia in Indonesia, Sarawak Oil Palm Plantation Owners Association (Soppoa), Felda Group, Malaysian Estate Owners Association, and East Malaysia Planters Association.
Soppoa chairman Datuk Hamed Sepawi, in addressing the 200-strong crowd of planters and government officials, highlighted that the oil palm industry is a national economic security crop for both Malaysia and Indonesia.
“The trees are planted by tens of millions of oil palm growers in both countries. At the same time, this nutritious edible oil feeds billions of people in China, India and other developing nations. The future growth of the oil palm industry is in Sarawak and Indonesia,” he said.
In the last two years, Malaysia earned between RM50 billion and RM65 billion a year from palm oil exports. The industry also constitutes up to one-third the value of Malaysia’s gross domestic product. Malaysia’s RM65 billion annual palm oil exports support some two million jobs and livelihoods along the sprawling palm oil value chain.
The Malaysian Palm Oil Board’s data also show that more than 330,000 smallholder families, working on 1.6 million hectares, produce a quarter of the nation’s palm oil exports.
Gapki leader Purboyo Guritno concurred with Hamed. The Indonesian Palm Oil Commission indicated that the republic earns US$10 billion (RM32 billion) annually from palm oil shipments. “Indonesia and Malaysia must take a more proactive approach in protecting the growth of the oil palm industry that supports tens of millions of livelihoods,” he said.
Purboyo said that oil palm planters had long been victimised and discriminated by trade barriers disguised as environmental protection, levied by developed nations like those in the EU and green activists. “We need to find ways to improve the collation and dissemination of scientific data on peat agriculture and greenhouse gas emissions so that everybody can better distinguish facts from false claims,” he said.
KL, Jakarta to fight anti-palm oil lobby
Oil palm planters in Malaysia and Indonesia are joining hands to form a coalition to fight anti-palm oil lobby that has been intensifying recently.
Fierce rivalry from competing vegetable oils grown in Europe and North America has prompted underhanded tactics by developed nations to curb the growth of the palm oil trade.
At a meeting in Kuching, Sarawak, yesterday, Malaysian and Indonesian oil palm planters did not discuss an alternative scheme to certify that palm oil is produced from sustainable methods. However, they agree to engage with the existing Roundtable on Sustainable Palm Oil (RSPO) for a more practical scheme.
The Malaysian Palm Oil Association (MPOA), the Indonesian Palm Oil Association (Gapki), Association of Plantation Investors of Malaysia in Indonesia (Apimi), Felda and Sarawak Oil Palm Plantation Owners Association (Soppoa) have decided to form a coalition called the Indonesia-Malaysia Palm Oil Group (Impog).
The first chairman of Impog will be from Apimi and will serve as Impog’s secretariat for the year 2010. The chairmanship will be rotated bi-annually. Impog has also formed a steering committee to focus on emerging research and development, sustainability related issues and communications to stakeholders.
Below is a palm oil nutrition article written by my colleague at New Sunday Times, Shanti Gunaratnam.
KEBALA BATAS: Universiti Sains Malaysia and the Malaysian Palm Oil Board have come up with a supplement that may be able to help prevent strokes. The supplement is supplied by a private company called Carotech Bhd.
Clinical trials are being conducted involving 400 volunteers at Kepala Batas Hospital and initial findings have so far been positive. The project’s lead researcher, Prof Dr Yuen Kah Hay of USM’s school of pharmaceutical sciences, said it was found that Vitamin E tocotrienols derived from palm oil reduced and eliminated white matter lesions associated with stroke.
White matter lesions are commonly seen in older people and those with a history of hypertension, diabetes and high cholesterol as well as people suffering from dementia, Parkinson’s and Alzheimer’s disease.
“We have seen this positive development in some of the volunteers during clinical trails,” Dr Yuen said.
“During a stroke, brain cells die but with tocotrienols, we noticed that the brains cells come back to life. Our clinical trials have shown that tocotrienols are neuro- and cardio-protective.”
Tocotrienols, part of the Vitamin E family, are found in numerous natural sources, with oil extracted from palm fruit having the highest content of tocotrienols.
Stroke is the third major killer in Malaysia after cardiovascular disease and cancer. Malaysia has more than 50,000 cases of stroke annually, with 3,300 fatalities. There is no known drug yet for stroke prevention. The findings of the clinical trials is expected to be revealed early next year.
“Tocotrienols also lower cholesterol levels, but our focus is on stroke prevention. This is because there are already many statin drugs that improve blood cholesterol levels in the market. However, there is none for stroke,” said Dr Yuen. “We wanted to have multiple sites for clinical trials but the cost was too high. In the past three years, we received RM3 million in funding from the board to conduct research on a bigger scale.”
Carotech Bhd managing director David Ho said once the findings were revealed, the supplement would be big news worldwide. “People all over the world are looking for preventive and not curative medicine. Tocotrienols not only work for strokes but also lower cholesterol levels, fight cancer, has anti-ageing properties and aid in a host of other diseases.
So far, the data gathered has been encouraging. People should take the supplement because it does not have any side-effects compared with pharmaceutical drugs. Stroke prevention is a multi-billion dollar business worldwide.”
Ho also said looking after stroke patients was costly for both hospitals and families. “Some stroke patients are incapacitated for years and this can put a financial burden on families. In America, one person is brought down by stroke every second. “Based on the sedentary lifestyle that Malaysians are leading, we, too, are heading in that direction.”
Glad to volunteer in clinical trials
HOUSEWIFE Tan Eng Hua decided to volunteer as a participant in the clinical trial on palm oil Vitamin E tocotrienols because her younger sister suffered a stroke. “I am living in Kota Kinabalu but decided to return to Kepala Batas to look after my aged mother and sister. It was my sister who asked me to take part in the clinical trial,” said the 60-year-old.
Tan had to undergo magnetic resonance imaging (MRI) on her brain to determine whether she had white matter lesions that increased the risk of stroke. Luckily for her, the MRI didn’t show any white matter abnormalities. She, however, could still participate in the “double blind clinical study”.
“Since participating in the clinical trials, I have started eating right and exercising. Both my parents are diabetic and have hypertension, so I have to be careful,” said Tan.The clinical trials, conducted by 10 scientists, will conclude next year.
Another volunteer, Azmi Yahaya, 56, knows what a stroke can do to the body because he is the primary caregiver to his aged mother. Azmi’s mother is bedridden and needs round-the-clock care since she suffered a stroke five years ago.
The army retiree, who owns padi fields in Kepala Batas, learned of the clinical trials through a friend. “My mother, who is still mentally sharp, has been incapacitated by stroke. It is important that I look after myself.
“Luckily, I do not have any bad habits like smoking or drinking. I get plenty of exercise working in the padi fields from dawn till dusk, which is probably why I am still healthy. But I cannot take my health for granted. That is why I decided to have my brain checked for white matter lesions through the MRI,” said Azmi.
Teacher Ganesan Appavoo, 46, who was diagnosed with diabetes four years ago, has been part of the clinical trials for two years. Since his parents are both diabetic, Ganesan said it didn’t come as a shock to him when he was diagnosed with the disease.
Instead of moaning and groaning about it, he started exercising and eating well to control his blood-glucose levels. Then, a friend told him about the clinical trials at Kepala Batas Hospital and he became a volunteer.
“I live in Sungai Petani and the hospital is just 20 minutes away. I come in for my medical checkup every three months and the doctors have put me on tocotrienols. The supplement boosts my energy levels,” he said.
Written by Lim Shie-Lynn and sourced from http://www.nasdaq.com/
KUALA LUMPUR, (Dow Jones) – Palm oil producers and government officials from Malaysia and Indonesia will meet May 3 to discuss the latest round of attacks by Greenpeace and other environmental organizations that have blamed producers for destroying rainforests and biodiversity, an industry executive said Wednesday.
The meeting, to be held in Kuching, Sarawak will discuss issues that affect the palm oil industry, including planting oil palms on peat soil, a practice that environmental groups say will increase greenhouse gas (GHG) emissions as peatland hold significant amounts of carbon.
Indonesia’s Sinar Mas came under fire recently after Greenpeace charged the company with failing to follow sustainable plantation practices required by the Roundtable on Sustainable Palm Oil (RSPO), a multi-stakeholder group formed to promote ethical plantation practices including the preservation of rain forests and biodiversity.
The report said Sinar Mas, the parent company of the Jakarta-listed PT Sinar Mas Agro Resources and Technology Tbk and the Singapore-listed Golden Agri-Resources, was widely involved in clearing rainforests and draining peatland for developing oil palm plantations.
The campaign forced global food giants such as Nestle NV and Unilever Plc to stop sourcing palm oil from Sinar Mas, despite the company being a member of the RSPO, an industry-sponsored certification body.
Sinar Mas has re-iterated its commitment to sustainable practices and appointed Control Union Certification and the BSI Group to carry out independent audits. It has also suspended a plantation manager who the company said was responsible for questionable practices.
But Greenpeace is demanding that even trading companies such as Cargill Inc boycott Sinar Mas’ palm oil, amid concerns that its produce is indirectly reaching end consumers through third parties, making the boycott by Unilever and Nestle meaningless. Cargill has said it would wait for the results of the external audit before taking a view.
“It is important for us to strategise and improve communication … to be well-positioned when the industry meets to address this issue at the RSPO level,” said Mamat Salleh, chief executive of the Malaysian Palm Oil Association (MPOA).
He said the upcoming meeting will be a follow-up from a collaboration agreement signed between the MPOA, the Indonesian Palm Oil Association (or GAPKI) and other plantation organizations in early March.
The meeting has generated much speculation amid talk that some palm oil producers, particularly those in Indonesia, may be planning to set up an alternative certification body, as they felt the RSPO hasn’t been able to serve their cause. Some industry executives have even said the meeting will be the precursor to setting up the alternative certification body.
Most major plantation companies in Malaysia are members of the RSPO while only some Indonesian companies have joined the body. Indonesia and Malaysia currently account for about 85% of the global palm oil supply. “The key issue in the upcoming meet is to discuss ways to address environmental and other equally compelling concerns. Producers are keen on a win-win solution at the RSPO level before opting to setup of a separate certification body,” Mamat said.
Growers had threatened to walk out of the RSPO annual meeting last November and quit the organization if it agreed with demands by Europe and Greenpeace to include additional conditions such as GHG emissions to the already stringent certification process.
Many growers say they are burdened with too many RSPO requirements while those with certified oils feel the demand for “green” palm oil was sluggish as buyers weren’t willing to pay a premium for RSPO-certified sustainable palm oil.
CAROTECH Bhd, a producer of palm oil nutrients and biodiesel, is hopeful of returning to profits in the current financial year ending June 30 2010, as the weak US dollar means lower loan repayment. It posted a loss of RM17.46 million in 2009.
Asked on Carotech’s earning growth prospects, Ho said it very much hinges on the Hospital Kepala Batas clinical trial on the ability of palm oil vitamin, particularly tocotrienols, to prevent stroke. “Animal studies have, so far, shown tocotrienols are able to protect brain cells from dying in the event of a stroke. If this trial in Penang proves that it works on human, many lives will be saved,” Ho said.
“We’re optimistic of a breakthrough finding that will spur more neuro-protective studies in other countries. As the world population age, people look to natural and preventive medicine that can help preserve the quality of life of stroke victims and their loved ones.
“Natural medication of palm tocotrienols for stroke prevention is set to be a multi-billion dollar market,” he added. Conducted by Universiti Sains Malaysia, Malaysian Palm Oil Board and Carotech’s team of scientists, preliminary findings of this world’s biggest human trial involving 400 volunteers consuming palm tocotrienols to prevent stroke will be revealed in January 2011.
EUROPE, in reducing palm oil usage in its food supply chain, blames oil palm planting for widespread tropical deforestation and peatland clearance.
France’s largest frozen food maker Findus said it is removing palm oil from its products in favour of rapeseed oil. French retailer Casino, too, said more than 200 food products would be palm oil-free by the end of the year.
This policy would apply to its other retail divisions like Franprix, Leader Price and Monoprix. Another food retailer Auchan said it was working on ways to guarantee all its products are palm oil-free. Carrefour, the world’s second-largest retailer, said it will replace palm oil in several branded goods.
British retail chain Marks & Spencer started a campaign against palm oil by putting up five-foot displays in its UK stores stating: “We think that destroying rainforests for palm oil is too high a price to pay for a biscuit.”
Two weeks ago, Greenpeace campaigners abseiled into Nestle’s annual shareholders meeting in Switzerland and demanded that the food giant stop using palm oil. They hung a banner with the slogan “Nestle, Give the orangutans a break!” and claimed Nestle’s use of palm oil in KitKat chocolate bars was harvested at the expense of the rainforests.
These developments have hit a raw nerve among Malaysian lawmakers.
Kanowit Member of Parliament (MP) Aaron Ago Dagang said there’s a lot of talk linking oil palm planting to deforestation and climate change but until now there’re no empirical evidence. “We need to look at it from all angles,” Dagang said in an interview at the Parliament lobby in Kuala Lumpur recently.
He drew attention to a recent news report from Jakarta where World Growth chairman Alan Oxley said several environment non-governmental organisations (NGOs) have strong connections with the European Commission.
Oxley pointed out that up to 60 per cent of WWF Europe’s revenue is funded by the EU government. Europe can prioritise environmental issues over economic growth because they are already wealthy, he said.
A quick check on the European Commission’s website revealed the Directorate-General for the Environment had, in the last 10 years, handed out over €66 million (RM211 million) to green NGOs. In 1998, the EU funding to environmental NGOs was just over €2 million (RM6.4 million) but last year, the amount nearly topped €9 million (RM29 million).
Mambong MP Datuk Dr James Dawos Mamit said he is not surprised by the EU government funding these NGOs as propaganda proxies. “Politicians in the EU are using political solutions, disguised as environmental concerns, to protect trade interests of their local farmers,” he said.
Mamit pointed to an independent think tank report released from Brussels, Belgium admitting the EU Renewable Energy Directive discriminates against imported biofuels, such as palm oil. The EU Renewable Energy Directive is a law that provides the guidelines for European countries to draw up their own biofuel regulations.
The GlobEcon report titled “European Policies Towards Palm Oil: Sorting Out Some Facts”, admits the Renewable Energy Directive’s foreign biofuel greenhouse gas calculations as faulty and intentionally discriminate against palm oil. The report demonstrates that the default assumptions embedded in the Directive about the ecological impact of foreign biofuels are based on politics, not scientific or economic reality.
While the use of biofuels across the EU is rising, so too is the chorus of environmental activists opposing their use. Sadly, many of the claims that foreign biofuels, specifically palm oil, are a threat to the environment are seriously flawed, some even completely unfounded, GlobEcon director Dr Gernot Pehnelt wrote.
Standing before lawmakers at the European Parliament, Pehnelt explained how the oil palm industry drive economic growth to alleviate poverty in developing nations like Malaysia and Indonesia. He also urged EU lawmakers to acknowledge the sufferings in low-income nations that palm oil critics continue to perpetuate.
Mambong MP Mamit concurred with Pehnelt that the EU Renewable Energy Directive restricts biofuel imports by rejecting forest land conversion and mandating compliance to greenhouse gas emission standards that are not science-based.
Mamit, who is an environmental expert, explained that conversion of degraded forest to oil palm plantations is just like establishing pine tree plantations in Europe and North America. “In fact, oil palm trees are better at sequestering carbon dioxide than pine trees. Herbs, bushes and shrubs in oil palm plantations thrive underneath the canopy and trunks of oil palm trees,” he said.
In Europe and North America, prescribed burning is carried out in pine tree plantations every spring to eliminate pests like pine-bark beetles and fungi. Yet, such destruction of plant biodiversity and greenhouse gas emissions is often ignored.
Mamit then highlighted the hipocrisy of the EU renewable energy directive that dictates developing countries to protect the environment to a far greater degree than Europeans did at the same stage of development but refuses to recognise the high opportunity cost of foregone development.
“If our oil palm planters fail to conform to EU’s definition of ‘sustainable standards’, we are denied access into their market,” said Mamit. “It clearly is a political trade barrier meant to protect EU rapeseed oil producers.”
On European green NGOs’ calls to reject oil palm planting on Sarawak’s peat soil and the imposition of unrealistic greenhouse gas criteria on palm oil exports, Julau MP Datuk Joseph Salang Gandum said “We need to take a more balanced view, based on logic and facts.”
“These lobbies seemed more targetted at killing the growth of oil palm plantings and blocking palm oil shipments into developed nations like Europe. Such trade barriers only serve to perpectuate poverty in rural Malaysia,” he added.
Gandum said oil palm planting has allowed Malaysia to supply affordable cooking oil and margarine to billions of people in other developing nations like China, India, Pakistan, Bangladesh and Vietnam.
He cited numbers from Oil World and Malaysian Palm Oil Board’s (MPOB) reflecting the growing global palm oil consumption and significant value addition of the palm oil industry to the nation’s economy. According to Oil World trade journal, Malaysia and Indonesia collectively export the bulk of 36.8 million tonnes of palm oil.
In the last two years, Malaysia earned between RM50 billion and RM65 billion (or US$15-20 billion) a year from palm oil exports. Indonesia Palm Oil Commission reportedly said the republic earns US$10 billion annually from palm oil shipments.
Malaysia’s annual US$20 billion palm oil exports supports some two million jobs and livelihoods along the sprawling palm oil value chain.
Bankers, insurance companies, islamic financiers, freight forwarders, cargo surveyors, shipping companies, traders, brokers, stock analysts, fund managers, food scientists, process engineers, mechanical engineers, agronomists, economists, ecologists, publishers, doctors, cosmetics companies, detergent manufacturers, lecturers, land surveyors, contractors and relevant government officials are all stakeholders in the palm oil industry.
MPOB’s data also show more than 330,000 smallholder families, working on 1.6 million hectares of oil palm plots, produce a quarter of the nation’s palm oil exports.
“The numbers speak for themselves. The final frontier of Malaysia’s oil palm planting expansion is in Sarawak. Many who live on native customary land, stand to uplift themselves from poverty through sustainable oil palm planting,” Gandum said.
“When I say sustainable, I mean better enforcement of the laws governing land boundary rights, good agriculture practices and workers’ rights that had already been enacted by Parliament,” he added.
Written by Lim Shie-Lynn and sourced from http://www.palmoilhq.com/
KUALA LUMPUR (Dow Jones) — Flawed empirical calculations and wrong assumptions on greenhouse gas emissions make the European Union’s (EU) renewable energy policy biased against non-European biofuel producers, including those of palm-based biodiesel, according to Dr Gernot Pehnelt, director of independent research and consulting institute GlobEcon in Germany.
According to the EU renewable energy directive, biofuels must result in greenhouse gas emissions reductions of at least 35% compared with fossil fuels in 2009 and rising over time to 50% by 2017, creating a market for at least 23 million metric tons of biofuels annually.
Under the proposed renewable energy directive, biofuel producers in the EU are able to claim higher greenhouse gas emissions savings than biofuel producers outside the region, said Pehnelt.
“It is particularly problematic since any reasonable emissions budgeting comparison showed palm-derived biofuel is less carbon-intensive than those produced elsewhere, including Europe,” said Pehnelt, who is also affiliated to the European Centre for International Political Economy.
“The EU has embedded protectionist measures into the directive at the behest of anti-development environmentalists and the uncompetitive European biofuels industry. These measures set unfair values on greenhouse gas savings for foreign biofuels, thus precluding market access,” he said.
Most life-cycle analysis carried out by researchers estimated greenhouse gas emissions savings of 55% for palm-oil based biodiesel, but the EU’s calculation, done by its scientific and technical research arm the Joint Research Centre, showed the use of palm-oil based biodiesel failed the 35% requirement, as it achieved only a 19% reduction in greenhouse gas emissions.
The life-cycle assessments carried out on palm oil showed a wide variance in greenhouse gas emissions savings as data used by the centre were based on old data.
The proposed directive, which will come into effect at the end of the year, also requires that sustainable biofuels should be produced with “no damage to sensitive or important ecosystems.”
As palm oil is widely criticized by environmental groups and blamed for contributing to environmental degradation in Malaysia and Indonesia, some buyers may prefer to source other oils that are less controversial, palm-based biodiesel producers fear.
Europe’s push for the use of renewable fuels in the transport sector has created one of the world’s largest biofuel markets, with demand from the region estimated around 10 billion liters (3.5 million tons) in 2009.
Though palm oil-based biodiesel exports from Malaysia rose 20% or around 45,000 tons to 227,457 tons in 2009, that figure is abysmally low compared with the increase in general demand, as requirements under the directive are limiting palm-based biodiesel’s access to the European market.
“The commission is committed to reducing Europe’s carbon emissions. It is clear that the EU can’t meet its own biofuel needs, so there is room for imports (of biodiesel). We are not against imports (of biodiesel), but the commission wants to ensure this is good for the environment and for trade as well,” Marlene Holzner, spokeswoman for Energy Commissioner Gunther Oettinger, told Dow Jones Newswires, in response to this article.
But there is a ray of hope after a recent study showed the EU recently started referring to oil palm plantations as “continuously forested areas,” a move industry experts consider positive for palm-oil based biodiesel in Europe.
A recent study by the International Food Policy Institute, commissioned by the Directorate General for Trade, under the European Commission, found palm oil to be the most efficient feedstock for biodiesel, as it produces byproducts and has an oil yield six times higher than comparable edible oils, such as rapeseed.
“All these studies have different results. We do not comment on the content of the studies. Once studies on the subjects are finalized, the European Commission will issue a report by the end of 2010,” Holzner said.
THE government is set to table a new law to establish feed-in-tariffs for renewable energy in Parliament this October, said Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui.
“It will be for the whole range from solar, biomass, solid waste to hydro. And when I say renewable energy, I also mean methane sourced from palm oil mill effluent for use in the gas pipeline,” he told Business Times by phone last night.
Earlier in the day, Chin said the Attorney General’s Chambers was in the midst of drafting the new legislation on feed-in tariffs. “We will table it in Parliament this October. Hopefully, the process can be completed by the end of the year,” he told reporters after the launch of the Second Malaysia-Europe Trade and Investment Forum in Kuala Lumpur yesterday.
Earlier in his speech, Chin said the New Economic Model had identified the green technology sector as one of the new sources of economic growth. “Our major initiative will be the introduction of the feed-in tariffs. Once that is done, we may need the European Union’s technology and expertise to modernise and expand our renewable energy sector, especially in biomass and solar energy,” he said.
Chin said the government will come up with a strategic plan to restructure the electricity supply sector. “It has to be more market-driven. We want to liberalise energy generation and distribution,” he said, adding that at an advanced stage, smart grids, smart meters and other related elements will be introduced.
Scheduled for October, the ministry expects 1,000 dignatories to fly in to Kuala Lumpur. Chin said the inaugural gathering will see Prime Minister Datuk Seri Najib Razak chairing a regional ministerial meeting on green technology development.
To a question on the drawdown progress of the RM1.5 billion Green Technology Financing Scheme, Chin replied he is upset with the National Green Technology Centre’s slow pace in processing the applications. He has now given the agency another month to do so.
“I understand this is something new but after three months only 19 out of 200 over applications have been processed. I’m not happy,” he said.
The RM1.5 billion Green Technology Financing Scheme was established under Budget 2010 to encourage supply and usage of green technologies. The loan is meant to help companies which are producers and users of green technologies.
Developers of green technologies are entitled to apply up to RM50 million over 15 years. Companies that use green technologies can apply up to RM10 million for 10 years.
MOST people think vitamin E only comes in a single form, but there are actually eight — four tocopherols and four tocotrienols. The commonly found vitamin E supplements on the shelves of pharmacies are tocopherols.
Using mouse brain cells, scientists at the Ohio State University Medical Center found that tocotrienols — and not tocopherols — have the ability to stop an enzyme in the brain from releasing fatty acids that eventually kill nerve cells.
In an email interview, Professor Dr Chandan Sen says tocotrienols, the potent variants of vitamin E, are not abundantly present in the American diet. This is because the margarine and cooking oil, which is largely made up of soy, canola, sunflower and olive oils, only have the tocopherol variants of the vitamin E family. Ten years ago, Dr Sen had already discovered tocotrienols’ ability to protect the brain from stroke.
The current study offers more details on how that protection works. “All eight different forms of the natural vitamin E have their distinct functions. Our research suggests that tocotrienols target specific pathways to protect against neural cell death and rescues the brain, after stroke injury,” says Dr Sen, professor and vice chair for research in Ohio State’s Department of Surgery and senior author of the study.
“Here, we’ve identified a novel target that explains how neural cells are protected by tocotrienols, the lesser known but far more potent form of vitamin E.”
Strokes occur when a blood vessel in the brain is blocked or bursts.When this happens, oxygen supply carried by blood vessels does not reach the brain cells, which then start to die. Symptoms of a brain stroke are sudden. They include sudden numbness, paralysis or weakness in victim’s face, arm, or leg, especially on only one side of the body, sudden vision changes, inability to understand or formulate speech and a sudden, severe headache.
High blood pressure, high cholesterol and diabetes are some key risks that trigger brain strokes. Dr Sen says his team of researchers have studied an enzyme that is activated after a stroke in a way that causes brain cells to die.
“We found that it can be put in check by very low levels of tocotrienols. So, what we have here is a naturally derived nutrient, rather than a drug, that provides this benefit,” says the professor, who is also the director of Ohio State’s Comprehensive Wound Center.
Dr Sen and colleagues had linked tocotrienols’ effects to various substances that are activated in the brain after a stroke before they concluded that this enzyme could serve as an important therapeutic target. The enzyme is called cystolic calcium dependent phospholipase A2, or cPLA2.
Following the trauma of blocked blood flow associated with strokes, an excessive amount of glutamate is released in the brain. Glutamate is a neurotransmitter that, in tiny amounts, has important roles in learning and memory. But too much of it triggers a sequence of reactions that lead to brain cell death the most damaging effects of a stroke.
Dr Sen and colleagues found that brain cells treated with tocotrienols were 100 per cent more likely to survive than cells exposed to glutamate alone. He also noted that only a small amount of tocotrienol is needed to achieve these effects — about 250 nanomolar, which is 10 times lower than the average amount of tocotrienol circulating in humans who consume the vitamin regularly.
“What this means is, you don’t need a lot of palm oil vitamin E to see these effects,” he says. “You only need 100mg, twice a day, for 10 weeks to build up an adequate tocotrienol concentration in your system,” he adds. This research by Ohio State University appeared in the March 2010 issue of Journal of Neurochemistry.
Supported by the US National Institutes of Health, the study was co-authored by Savita Khanna, Sashwati Roy and Cameron Rink of the Department of Surgery and Narasimham Parinandi and Sainath Kotha of the Department of Internal Medicine, all at Ohio State University; and Douglas Bibus of the University of Minnesota. New Jersey-based Carotech Inc has been the main supplier of palm oil vitamin E brandnamed Tocomin and Tocomin SupraBio for such studies for almost a decade.
“We are proud to have been regularly chosen and associated with medical studies in tocotrienols, a naturally occurring nutrient in palm oil,” Carotech Inc vice-president WH Leong says in a separate interview. To date, Carotech is the world’s largest and only GMP-certified tocotrienol producer.
“Tocotrienols — not tocopherols — taken orally as supplements, are able to penetrate deep into our internal organs like the brain, kidneys and liver. It is this characteristic that offers bright promise in clinical trials that seek to save lives from killer diseases such as strokes, heart attacks and cancer,” adds Leong.
Carotech Inc’s parent company Carotech Bhd is listed on Bursa Malaysia stock exchange. Apart from supplying palm oil vitamin E for medical research at Ohio State University in the US, Carotech is also facilitating the same nutrient for human trials on prevention of strokes and heart attack at Hospital Kepala Batas in Penang.
Led by Universiti Sains Malaysia and Malaysian Palm Oil Board’s team of scientists, this world’s biggest human trial using palm oil vitamin E is filed and viewable at the US Food and Drug Administration website. This means the findings of this three-year trial ending January 2011, whether positive nor negative, shall be published worldwide.
If the outcome is positive, Carotech will be the world’s first to embark on making cholesterol-lowering medicine from palm oil vitamin E.
IOI Corp Bhd anticipates palm oil prices to hit RM2,800 to RM3,000 a tonne in the next few months as it braces for lower output.
As one of the most efficient planters and biggest palm oil producers in the country, IOI’s price forecast is highly awaited by vegetable oil traders and analysts around the world.
IOI executive chairman Tan Sri Lee Shin Cheng said that he expected the group’s current-year palm oil output to fall as much as 8 per cent to around 715,000 tonnes. In the last financial year ended June 30 2009, IOI managed to squeeze 777,310 tonnes of palm oil from its 80-odd estates.
There’s also the labour shortage issue – workers come and go,” Lee told reporters on the sidelines of the official opening of Hong Leong Bank’s branch in Bandar Puteri Puchong, Selangor, yesterday.
At an economic conference two months ago, when palm oil was trading at around RM2,400 a tonne, Lee said he was optimistic of prices trending upward to between RM2,800 and RM3,000 a tonne. The price did rise to a high of RM2,700 a tonne, but has fallen rapidly in the last four weeks.
When asked why, Lee replied: “The US dollar has weakened against a stronger ringgit and that has dragged palm oil prices (lower) to a certain extent.” According to Bank Negara Malaysia’s website, US$1 is at RM3.21 currently, from RM3.45 a month ago.
Lee does not expect the palm oil price to continue falling. “Demand for palm oil is very strong all around the world, especially traditional markets. Palm oil is the best vegetable oil in the world. It is nutritious and far more flexible in its applications,” he said.
Yesterday, third-month benchmark crude palm oil on the Bursa Malaysia Derivatives market traded RM39 lower to close at RM2,500 a tonne.
The future of oil palm plantings lies in Sarawak as Malaysia’s agriculture land is limited. Since Sarawak has overtaken Johor to be the second biggest oil palm state in the country after Sabah, it is only logical for the Malaysian Palm Oil Board (MPOB) to be more forthcoming in the communication of facts and figures of oil palm planting on peatland to planters there.
“The future growth of the oil palm industry is in Sarawak’s fertile agriculture land,” said Sarawak Oil Palm Plantation Owners Association (Soppoa) secretary Phillip Ho. “But we now have a big problem of uncollected fresh fruit bunches rotting in the fields due to labour shortage,” he told Business Times in an email interview from Miri.
“Malaysians are averse to working in plantations. Estate works, by nature, are far from the bright city lights. We have very little choice but to depend on foreign labour to do the job,” he said.
Last year, Sarawak only harvested two million tonnes of palm oil. Soppoa estimates that a 10 per cent average of uncollected fruits at RM2,000 crude palm oil price translates into RM400 million loss in export opportunity from Sarawak.
In a separate interview, Kapit member of Parliament Alexander Nanta Linggi stressed that it is of national economic interests that MPOB inform the public more frequently on progress studies of sustainable peatland farming so that investors understand how best to optimise what is available in Sarawak.
Non-governmental organisations (NGOs) like Greenpeace and Wetlands International have claimed that oil palm planting on peatland causes tremendous pollution in the form of greenhouse gas emission when water is drained from the soil. These groups, however, failed to provide any credible scientific evidence to support their allegations.
As at December 2009, Sarawak’s oil palm planted area stood at 840,000ha, of which close to 10 per cent of the hectarage is owned by 7,300 smallholder families.
Linggi spoke of higher economic potential of oil palm planting compared with other cash crops. “About 70 per cent of my constituency population is living below the poverty line of RM840 monthly income,” he said. “Nobody criticises pineapple planting on peatland. So, why are there unfair attacks from NGOs when my people want to plant oil palms?” he asked.
“With closer cooperation between MPOB and planters in Sarawak on how best to plant oil palms on peatland, more people will be on the right track to lift themselves out of poverty. I see this as part of the New Economic Model that targets high income via sustainable development,” he added.
Linggi said he supports the good intentions of the Sarawak state government agencies like the Land Custody and Development Authority (Pelita) and the Sarawak Land Consolidation and Rehabilitation Authority (Salcra) to develop customary rights land (NCR) land so that the rural poor is lifted out of poverty. But this can only be achieved with sincerity.
“I urge Pelita and Salcra, in managing such joint ventures, be more engaging with participating natives and not burden them with inefficiencies. Government officials should be more mindful that it is the participating natives’ land that is being developed, not state land. Investors, too, should accord good dividends to native shareholders,” he said.
According to recent filings in the Hansard Report, Kanowit Member of Parliament Aaron Ago Dagang asked if the nutritional value of palm oil harvested from peatland is inferior to that planted on hill slopes. In response, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said, “the oil quality is just as nutritious.”
In 2008, the government had set up the Institute of Tropical Peat to address concerns over the cultivation of oil palm on peat land. MPOB had also published a technical manual on peatland oil palm planting and is carrying out studies on ways to reduce production costs.
Dompok then sought tighter support from all Members of Parliament to help spread the truth and facts of sustainable practices by oil palm planters to quash baseless allegations by NGOs, who have been using under-handed tactics to lobby against oil palm planting in Sarawak’s 1.6 million ha of peatland.
Billions of ringgit are wasted along the whole palm oil value chain every year but oil palm planters say closer ties with the government can prevent such losses.
“So far, reports have been focusing on labour shortage. It is not just that one issue. It is more of inefficiencies along the whole value chain,” said Layar Positif Sdn Bhd managing director Charles Chow, an oil palm smallholder in Sandakan, Sabah.
He urged the Malaysian Palm Oil Board (MPOB), the Immigration Department and the finance and human resources ministries to be more engaging with smallholders. “By having regular dialogues, all stakeholders in the industry stand a better chance of finding pragmatic solutions to minimise wastage throughout the supply chain,” he said.
Since MPOB is on an aggressive drive to get smallholders to replant unproductive trees with high yielding hybrids, one would expect matching expansion in milling, refining and storage infrastructure. Chow related how smallholders experienced tremendous wastage from price volatility when fruit bunches were rotting in the field because the industry lacked adequate storage.
When palm oil prices go up, planters are happy. In March 2008, prices soared to its highest of RM4,486 a tonne and that prompted overseas buyers to cut back their purchases and when the global financial crisis set in, it prompted governments in China and India to tighten credit facilities. This lead to a flood of defaults and prices fell to a low of RM1,390 a tonne in October 2008.
Chow recalled how shipments were stuck in Sandakan and Lahad Datu ports when buyers delayed taking delivery in the hope that prices would fall. “At that time, refiners’ storage were filled to the brim and mills turned away our produce because they are operating at full capacity,” he said.
Sabah, the largest oil palm planting state in the country. Last year, it saw output shrink for the first time ever to 5.45 million tonnes because there were not enough labourers to harvest fruit bunches in the plantations.
Since there was a critical shortage of harvesters, Sabah output fell miserably. As much as 20 per cent more fruits or one million tonnes of palm oil were left unharvested in the plantations because of critical shortage of strong and experienced hands, Chow said.
He said MPOB, in giving new licences for expansion of planted area, should give accurate worker estimates to the Human Resources Ministry so that the industry is able to hire enough harvesters to collect the fruits.
“Let’s say, if the government had approved recruitment ratio of one harvester to 10ha, we could have harvested an additional one million tonnes of palm oil. At a conservative pricing estimate of RM2,000 per tonne, opportunity loss in palm oil exports from Sabah works out to be RM2 billion,” he said.
In a separate interview, Valentino Ting, another smallholder based in Sandakan said what he sees now is an ad hoc approach to complaints and that the same problems remain.
Last year, Sabah produced 5.45 million tonnes of palm oil and this should translate into some RM80 million of cess collected by MPOB. “We want MPOB to use a portion of the money collected to upgrade and expand bulking facilities at the ports. In case of a price plunge in the international market, smallholders like us can continue to sell fruits to the millers,” he said.
This newsreport by Reuters appeared in Business Times pullout today.
IOI Corp targets to plant up 60,000ha of its Indonesian land holdings with oil palms in five years and will then seek “green certification” for these estates, a top official said yesterday.
IOI, Malaysia’s second largest listed planter, has come under fire from green groups who say it has destroyed rainforests and engaged in open burning to clear its Indonesian estates – an allegation the firm has strongly denied.
Group executive director Datuk Lee Yeow Chor said while the “noise by the environmentalists” had slightly affected palm oil exports to Europe, they had overlooked that oil palm estates helped drive developing countries like Indonesia.
“We don’t plan to expand further into Indonesia but we will focus on planting and developing the areas,” he said in an interview at Invest Malaysia 2010. “And we will apply to the Roundtable on Sustainable Palm Oil for a green certification,” he said, referring to an industry body of consumers and planters that has developed an ethical certification system that includes pledges to preserve forests and wildlife.
IOI currently has about 80,000ha of land in the Indonesian province of Kalimantan in Borneo Island after venturing into Indonesia in 2007. The firm has obtained green palm oil accreditation for some of its plantations in Malaysia.
IOI’s plantation holdings total roughly 250,000ha, and Lee said the firm has allocated RM200 million this year for plantations to boost plantings and other expenditure as prices of the vegetable oil steadily grow.
“There is a strong upward trend for palm oil prices and this current level of RM2,550 is very supportive,” Lee said. Supply has been affected since a year ago and we only expect a moderate increase in Malaysian output this year. And although countries like India and Pakistan recorded a 38 to 40 per cent jump in palm oil imports last year from Malaysia and Indonesia, demand will steadily rise in 2010 as the global economy recovers, he added.
Plantations account for about 50 per cent of IOI’s profits.
Since taking its property arm private, IOI has managed to get its long-delayed Singapore development projects off the ground and facilitate funding requirements for land acquisitions. Lee said preview sales of its Seascape Collection Residences in Singapore’s Sentosa Cove have been encouraging and expects the project to contribute positively to this year’s earnings. — Reuters