WASHINGTON-based World Growth (WG), a pro-development non-government group, said the World Bank is straying from its core purpose of poverty alleviation as it adopts narrowly-defined sustainability rules before it lends money for oil palm planting.
This is despite the fact that Malaysia and Indonesia are being represented in the World Bank and that Prime Minister Datuk Seri Najib Razak heads the Southeast Asian constituency in the bank’s governing board.
When contacted by Business Times, WG chairman Alan Oxley noted that it would be natural for the World Bank’s president, Robert Zoellick, to consult the governors, which include Najib and Indonesian president Susilo Bambang Yudhoyono, over palm oil funding given how important it is for the countries’ drive to alleviate poverty.
Indonesia and Malaysia are the world’s top producers of palm oil.
It seemed that World Bank staff listen more to donors and environmental activists rather than developing countries. Its private-sector lender, International Finance Corp (IFC), stopped funding the palm oil industry in 2009 after complaints from environmental and human rights non-governmental organisations prompted a review of its lending practices.
IFC’s director of global manufacturing, agribusiness and services Atul Mehta reportedly said part of the World Bank’s new strategy involves supporting the Roundtable on Sustainable Palm Oil (RSPO), of which it is a member.
Atul said if palm oil clients violate commitments to keep forests standing and engage with local communities, the IFC can refuse loans.
Congressmen John Shadegg and Scott Garrett said the sustainability criteria will limit farmers in developing nations to benefit from private and public investment and undermine the World Bank’s core mission of raising living standards.
In a document made available to Business Times the congressmen said, “the World Bank’s reconsideration of its pro-agriculture policies is worrisome given the proven economic success of this development model”.
When asked to comment, Oxley concurred with the congressmen that the World Bank should not overreach its priorities to set environmental standards, especially when it impacts its core mission, the jobs of millions and food offerings to billions.
“Zoellick’s decision on the freeze of palm oil funding is a gross overreaction to a minor workplace infraction. Furthermore, this decision will lock in RSPO-style regulations and requirements on World Bank lending,” he said.
“Why is the World Bank stepping into a role of an environmental regulator and enforcer instead of staying committed to its primary mission of poverty alleviation?” Oxley questioned.
For the last 40 years, Malaysia has tried a variety of ways to mechanise the harvest of oil palm fruits as the industry works to improve efficiency in the face of a worsening manpower shortage.
Todate, the mechanisation of fruit evacuation remained largely unsuccessful. As a result, the industry has been working on the trees – to make them easier to harvest and to have more oil.
In the small town of Paloh, Johor, scientists have produced the next set of trees that could significantly improve the industry further. Not only are these trees easier to harvest, they will also have a fifth more oil from the current batch.
Buyers are coming from as far as Sarawak.
“I like what I see. It is easier to harvest and handle. The most important thing is, it will give me higher oil yield,” said one planter during a recent seed-buying mission to Applied Agricultural Resources Sdn Bhd (AAR)’s oil palm seed garden in Paloh.
Malaysia is now the world’s second largest palm oil producer after Indonesia. But data from the Malaysian Palm Oil Board is showing a worrying trend: palm oil output is likely to stagnate at 17.6 million tonnes for the third straight year in 2010.
Assuming this amount of oil is gathered across 4.9 million hectares, this year’s yield will only total 3.6 tonnes per hectare in a year. Many planters say this is due to a severe shortage of harvesters.
While the search for the best mechanisation system continues, Malaysian crop scientists are making headway in raising tree productivity.
In the past, as oil palm trees grew taller and taller, planters use very long poles to harvest the fruit bunches. This got many crop scientists thinking. Why not breed shorter palms that bear very big fruit bunches?
So in the 1960s, crop scientists introduced the hybrid called the Dura X Pisifera (DXP) as the standard planting material. As time goes by, many in the industry affectionately referred to the DXP hybrid as “the Dolly Parton type” because the trees are shorter and produce big fruit bunches.
Fifty years on, Malaysia’s oil palm landscape is mostly populated with Dolly Parton trees.
In an interview with Business Times, seed producer AAR is giving a sliver of hope for the industry. AAR research director Dr Kee Khan Kiang introduced the higher oil yielding semi-clonal hybrid called “AA Hybrida I”.
Compared with the Dolly Parton standard, the dwarf-like AA Hybrida I has more, albeit smaller, fruit bunches. It also has higher oil yields.
“One of the problems of big bunches is that the inner fruitlets do not have space to develop fully. In smaller bunches, however, the inner fruitlets have a greater chance to develop and ripen more evenly. Therefore, for the same weight, smaller bunches yield more oil,” he said.
It then became apparent – bigger is not always better.
Seed selection is crucial in oil palm planting because those who use seeds gathered from existing estates suffer from low yields no matter how many bags of fertiliser are applied to the trees.
Kee confirmed that the AA Hybrida I is “the cream of the cream” and can yield 20 per cent more oil than the previous generation of DXP seeds.
His team of scientists adopted the semi-clonal strategy to step up seed production while maintaining key qualities like the dwarf stature of the tree and high oil yield in the fruit bunches.
“Our semi-clonal seed production technology ensures clients get consistent quality in every seed they buy from AAR,” Kee said. “And the good thing is, for now, we’re not charging a premium.”
During the tour around the Paloh seed garden, planters from Sarawak witnessed firsthand how AAR scientists match-make oil palm trees, working daily to perfect Malaysia’s top cash crop with the latest breeding technology.
Another compelling feature of the AA Hybrida I is that its dwarf stature means more trees can be planted. It allows for a higher density of 148 trees in one hectare compared with the current standard of 136.
A smallholder, owning 1,000 hectares in Betong, Sarawak, noted the higher productivity per harvester in planting the AA Hybrida I. “This is good. When the palms start to bear fruit, I don’t need to hire as many harvesters like others and yet I can get more oil per hectare.”
AAR head of crop improvement Tan Cheng Chua concurred that at prime fruit bearing age, the AA Hybrida I, under good management and environment, is capable of producing 40 tonnes of fresh fruit bunches with 24 per cent oil extraction rate. That works out to be more than nine tonnes of oil per hectare in a year or 2.5 times higher than the country’s average yield.
AAR, an equal joint venture between Boustead Plantations Bhd and Kuala Lumpur Kepong Bhd, had started selling the AA Hybrida I two years ago. The company is now working on the AA Hybrida II that will see a further 25 per cent improvement in oil yield. It is scheduled to be launched in 2015.
Those who are not familiar with oil palm plantations tend to look at satelite pictures and assume it a sterile field of mono-crop. But to the people who live in the oil palm estates, there’s a fulfilling life of sunshine, rain, gentle breeze, tears, laughter and love.
Most of all, the oil palm estate is home to more than 300,000 families of small farmers in Malaysia.
Oil palm planters in Sarawak are appealing to the government for a waiver of the windfall tax on crude palm oil (CPO).
Oil palm planters in Peninsular Malaysia had been paying windfall tax when CPO prices went beyond RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak will soon pay the windfall tax as the average monthly cash price surpasses RM3,000 per tonne.
Yesterday, CPO futures on the Bursa Malaysia derivatives market closed RM82 higher at RM3,273 per tonne.
In a statement released yesterday, Sarawak Oil Palm Plantation Owners Association (Soppoa) chairman Datuk Abdul Hamed Sepawi said it is unfair to levy a windfall tax on CPO, a commodity which is subjected to many factors in the international market beyond planters’ control.
“In the normal boom-and-bust cycle of commodity trading, a sudden jump in price is not considered a windfall,” he said.
He then explained the profitability of oil palm plantations depends on the age and productivity of oil palm trees.
“It takes 10 to 12 years before a new estate can recoup its initial investment. So, a newly-planted estate would still be losing money even if palm oil prices surpass RM3,000 per tonne,” he said.
Hamed said the formulation of the windfall tax is flawed because it is based on the CPO selling price instead of actual profits. “How can we pay windfall tax when we have not even made any profits?” he asked.
Palm oil is already the world’s most heavily-taxed vegetable oil, with oil palm planters having to pay 25 per cent corporate tax, cess amounting to RM13 per tonne of CPO, as well as 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak respectively. Also, there are varying import duties in countries that buy palm oil.
When compared to businesses in other sectors that just pay 25 per cent of corporate tax, oil palm planters have had to pay more.
When all the cess and taxes are added up, planters in Peninsular Malaysia pay an effective tax rate of 26 per cent.
In Sabah and Sarawak, it is even more punishing. For every RM1 an oil palm planter in Sabah earns, he is paying 40 sen in total cess and taxes, while in Sarawak, the amount is 37 sen.
FORESTS are often called “the lungs of the world” — huge carbon sinks absorbing carbon dioxide emitted by the industrialised world, and producing the oxygen we need to breathe.
At the same time, agriculture is seen as “polluting” in the sense that land clearing and development release greenhouse gas into the atmosphere, contributing to global warming.
Environmental organisations such as Greenpeace, Friends of the Earth and Wetlands International as well as their local affiliates take this view further by lobbying for a moratorium on planting oil palm on peat soil and the imposition of greenhouse gas criteria on palm oil exports.
In 2007, Wetlands and the Netherlands-based consultancy Alterra issued a report titled PEAT-CO2 assessment of CO2 emissions from drained peatlands in southeast Asia alleging the region’s peatlands are going up in smoke, emitting tonnes of carbon dioxide and causing global warming.
Kuching-based Tropical Peat Research Laboratory (TPRL) director Dr Lulie Melling argues that if such a claim is true, then millions of Sarawakians would have choked to death.
In reality, Sarawak’s oil palm plantations have been sequestering carbon dioxide and generating oxygen that goes back into the atmosphere while creating carbon sinks and stocks.
“People tend to forget that oil palms are trees and that they absorb carbon dioxide in the air, only to release oxygen and in the same process, convert solar energy into biomass,” says Melling in an interview in Kuching.
“Trees are trees, they function the same whether they are part of the forest or plantations.
“Since tree plantations are perennial, they are more efficient carbon sequesters than seasonal oilseeds like soy, rapeseed and sunflower. Oil palms can feed on year-round tropical sun and rainfall to create biomass, i.e. carbon stock, without any soil disturbance compared with seasonal oilseeds.”
When peer-reviewed studies by soil scientists were adduced at the Roundtable on Sustainable Palm Oil (RSPO) meetings, it became evident that reports containing alarmist predictions were founded on calculations riddled with statistical bias and lacking in real evidence.
Last year, Brinkmann Consultancy’s recommendation to include greenhouse gas emission from peatland as a criterion for RSPO certification was rejected. TPRL’s findings had, in part, showed soil respiration at oil palm estates planted in peat had lower greenhouse gas emissions than that of untouched peatland.
This is one instance where soil research allows you to differentiate facts from mistaken assumptions about planting crops on peat soil. Good soil management, be it peat or mineral-based, is the basis for sustainable food production.
Melling says that many of the current assumptions about tropical peatland were based on the understanding of temperate peatland research.
“Tropical peat is different from temperate peat. First and foremost, tropical peat is mainly woody material, whereas temperate peat is made up of spaghnum and sedges.”
The woody nature of tropical peat means there is higher lignin content. Lignin, being a more “recalcitrant” carbon than labile carbon of cellulose materials in temperate peat, highly influences the peat decomposition rate.
Furthermore, the acidic condition of tropical peat inhibits microbial population, indirectly slowing the breakdown rate and therefore greenhouse gas emissions. Heavy and frequent rainfall in Sarawak, which helps to maintain moisture content in the peat soil, also decelerates decomposition and carbon dioxide emission.
Melling goes on to explain that unlike the northern hemisphere where temperate peatland is developed for energy and horticulture, oil palm plantations in the tropical countries only use the peatland as a planting medium.
On current understanding that drainage of peatland for agriculture leads to large carbon losses from oxidation, Melling says it is “not entirely correct”. “Peat subsidence is also due to compaction, consolidation and shrinkage.
“Water management and compaction is a prerequisite to any agriculture development on tropical peatland. Consolidation of the peat increases bulk density and capillary rise, resulting in higher water-filled pore space of the peat. This leads to a more anaerobic condition, which results in a lower decomposition rate and less carbon dioxide emission.”
Over the years, Melling has found that people, who are ill-informed, jealous or have vested interests, tend to get offended when she speaks out on issues. At such highly-charged meetings, it helps to stick to a simple rule: “I just do my job; I don’t try to do someone else’s job, and I don’t let anyone else do my job.”
She takes a sip of tea and leans back on her office swivel chair.
“When I say I do my job, it also means I do not do someone else’s job. This is because scientists are not in the business of saving the world, nor are we vegetable oil salesmen. Science is about the process, not the purpose.”
On not letting anyone else try to do her job, Melling attributes it to the highly politicised topic of climate change, especially on greenhouse gas emissions.
In many international conferences on tropical peatland management and greenhouse gas, she has witnessed how some activists and politicians, skilful at straw man arguments, were quick to label people they disagree with as “taking sides with greedy oil palm tycoons who do not care about the environment” and are “likely to condone widespread forest destruction”.
While most local scientists become silent when debates heat up and arguments get louder, Melling rises to the occasion.
Soon after she presents her data, it becomes apparent that the critics’ claims are full of speculations.
Until today, these environmental activists and politicians continue to claim expertise in tropical peat despite having never waded into Sarawak’s itch-inducing and acidic peat swamps.
As early as 1995, Melling has been studying tropical peat. Despite escalating citations of her peer-reviewed research papers, she remains humble and says there is still much to learn.
Recently, Melling and her team at TPRL set out to verify whether a national park, logged-over forest and oil palm plantation absorb more greenhouse gas than they emit.
Three 40m-tall Eddy Covariance towers were set up in an oil palm plantation in Sibu, a logged-over forest and Maludam National Park in Betong division.
They have built-in lightning protection and the sensors are fully powered by solar panels.
These instruments measure carbon flux and concentration, wind, moisture, sunshine hours, rainfall, humidity, soil moisture and water table.
When asked to comment on Malaysia’s aspiration to become a knowledge-based economy, Melling says the government needs to allocate more funds for peat soil research.
“Through Science, farmers are able to carry out sustainable agriculture that satisfies both the economic and environmental needs of food production.”
THE government’s new replanting scheme will target 365,000ha of oil palms older than 25 years as the world’s No. 2 palm oil producer tries to lift flagging output, a top Malaysian industry official said.
Industry regulator Malaysian Palm Oil Board’s (MPOB) new chairman, Datuk Seri Shahrir Samad, said the scheme would take two to three years to complete and that the government had allocated RM297 million under the 2011 Budget.
The scheme is the latest initiative to boost yields in the country, which has fallen behind top producer Indonesia in terms of output. An earlier industry-funded scheme to replant 200,000ha in 2008 in a bid to boost slumping prices was almost completed this year.
“I think we can easily achieve 17.5 million tonnes (in 2011) even with this new replanting scheme as there will be more young oil palms coming into maturity,” Shahrir said in his first interview with the foreign media as MPOB chairman.
Shahrir’s forecast was 4.9 per cent lower than the government’s production target of 18.4 million tonnes for next year, and roughly the same as his projection of 17.5 million tonnes for this year. “I don’t think there will be a drop in production even after the erratic weather this year. The younger trees are quite resilient,” he said.
Early this year, El Nino-driven hotter weather dried up yields and lifted the Malaysian benchmark palm oil prices, which have gained almost 15 per cent so far this year. The weather condition was quickly followed by La Nina, which brings more rains and floods to southeast Asia that can complicate harvesting and transport of the palm fruits.
Malaysia exports almost 90 per cent of its output. Last year, Malaysia derived RM37 billion from crude palm oil exports and RM13 billion for refined products and oleochemicals.
Shahrir said the government would allocate up to RM127 million to further develop the refining and oleochemical industries, with aid mostly targeted at Sime Darby Bhd , IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK) – the top three palm oil companies in the country.
The MPOB is proposing mandatory green standards to ensure palm oil does not come from estates that expand by felling forests and marginalising local communities, Shahrir said. The MPOB has had a code of practice for palm oil firms to halt environment pollution since 2007, which firms such as IJM Plantations Bhd, Genting Plantations Bhd and KLK have adopted.
“The code is similar to the RSPO’s principles and criteria,” Shahrir said, referring to the industry-driven Roundtable on Sustainable Palm Oil that has produced a certification system whose participants have to commit to to preserve the environment.
“The industry has asked that we keep this code voluntary like the RSPO, but we are also in discussions with the government on starting an audit body to look at the industry, to ensure that the standards are met,” Shahrir said ahead of the RSPO conference in Jakarta, next week. — Reuters