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Greener environment or protectionism?

April 30, 2012 1 comment
FACING BARRIERS: Oil palm, despite being the most efficient crop for biofuel, is still considered not as sustainable as other oil crops. A flag bearer for the palm oil industry and an economist tell OOI TEE CHING of protectionist measures in the US and European Union used to block palm oil  imports.



TAN Sri Bernard Dompok stared across the table. The solemn look on his face accentuated the sombre atmosphere in his office.

After what seemed like eternal silence, the Plantation Industries and Commodities Minister leaned forward and said he had recently returned from urging US government officials to accord palm oil biofuels equal trade opportunities with local variants, and not to restrict palm oil imports.

He told Business Times that the US regulatory body Environmental Protection Agency’s (EPA) current findings on palm oil carbon footprint is faulty.

In 2007, the US Congress had allowed for refineries there to blend a certain amount of renewable fuel with gasoline and regular diesel. Ethanol and biodiesel qualify, if they are 20 per cent cleaner than fossil fuels.

In January this year, the EPA released a preliminary analysis suggesting that biodiesel made from palm oil does not qualify. This is based on an assumption that wanton deforestation occur in Indonesia and Malaysia when planting oil palms.

Since EPA said palm biodiesel fails to meet that 20 per cent threshold, oil companies in the US cannot use it. This mean they can only use fuels made from soyabeans, animal fat, algal oil, canola oil and used cooking oil.

“It is a blatant disregard of scientific evidence to assume that massive deforestation occur in the planting of oil palms,” Dompok said.

“When EPA announced palm biodiesel only has GHG (greenhouse gas) savings of 17 per cent from the usage of regular diesel, it did not take into consideration recent oil palm yield improvements and environmental protection development undertaken by our planters, millers and refiners,” he added.

Citing numbers from the Malaysian Palm Oil Board, the minister said the GHG savings of palm biodiesel is around 60 per cent that of petroleum diesel. Furthermore, palm biodiesel’s green factor can go as high as 66 per cent when produced with methane captured at the mills.

Dompok said many US officials were misinformed about Malaysia’s steadfast commitment to both economic growth and environmental protection.

“We’re in the process of harnessing the significant potential for palm biomass. Malaysia is investing into next generation biofuels and bio-chemicals that will satisfy growing domestic and international demand for greener products,” he said.

Separately, in a telephone interview from Washington DC, renowned economist Dr Robert Shapiro explained that the determination of GHG savings of various oil crops to fossil fuels is part of EPA’s renewable fuel standard (RFS) programme, which aims to promote more green-energy usage, including advanced biofuels.

Shapiro, who is Sonecon LLC chairman, is also a fellow at the Georgetown Center for Business and Public Policy at the McDonough School of Business.

He said the RFS is effective in addressing the US’ goals to reduce dependency on fossil fuel, create jobs and lower GHG emissions from the transportation sector.

“In order to meet its mandate of higher green energy usage, America needs to explore all options, and not just domestic sources such as soyabeans and corn,” he said. 

The US is the world’s biggest producer and exporter of corn. The RFS, introduced in 2005, created government-guaranteed demand for corn, the renewable feedstock to make ethanol.

An update to the RFS approved by the US Congress in 2010 (RFS2) became controversial due to its initial determination that corn ethanol would not meet sustainability standards due to indirect land use change, reflecting the current debate over palm biodiesel.

“We observed that the EPA initially determined that corn ethanol reduced GHG emissions by just between five and 18 per cent, compared to gasoline, far less than EPA’s recent determination for palm oil and insufficient for use under the RFS programme.

“This was subsequently revised following a strong response by researchers questioning the EPA’s analysis of additional emissions associated with land use change. The Agency, finally, reduced the number by half,” he said.

“In fact, the general view of international experts is that the current understanding and projections of emissions from land use changes are highly speculative and therefore, not a reliable basis for policy-making.”

Shapiro acknowledged that the increased production of ethanol has a large impact on corn prices. In a free market, if the price of corn goes up, demand will go down, moderating corn prices. But the US federal mandate requires the same amount of ethanol no matter how expensive corn is.

In 2005, when the renewable fuel mandate was first introduced, ethanol production accounted for only five to 10 per cent of the demand for corn in the US. Now it is up to roughly 40 per cent. 

Currently, corn prices on the Chicago Mercantile Exchange is trading at about US$6.50 (RM19.83) per bushel – almost triple the pre-mandate level.

“If palm biodiesel, a very efficient renewable fuel, is to be included into the RFS2, it would lessen corn demand for fuel and possibly lead to cheaper feed for our livestock farmers,” Shapiro said.

In Europe, there is a law requiring 10 per cent of all transportation fuel to come from renewable sources by 2020. 

Palm biodiesel exporters from Malaysia and Indonesia have consistently expressed their grave concerns that in the US and European markets, palm oil is being unfairly assessed to protect the US soyabean and European rapeseed farmers.

Incidentally, US soyabean farmers are speaking with the European Union (EU) over their exclusion from the EU biodiesel market due to a similar determination that soya biodiesel fail to meet the European Renewable Energy Directive. 

On a global scale, both palm and soya biodiesel producers have stated that the EU’s assessments are inaccurate and violate trade rules at the World Trade Organisation.

The advocacy roles of palm oil groups

April 25, 2012 Leave a comment
This was written by Edi Suhardi who works at one of GAPKI’s member companies. It was published in Jakarta Post.

Last week, Bandung hosted the annual congress of the Association of Indonesian Palm Oil Companies (GAPKI). While this was routine for the association, it is imperative for the association to rethink its role as the vanguard of efforts to advance the country’s palm oil industry.

Palm oil is now Indonesia’s second-biggest export after coal. Despite its achievement, the industry is treated like a Cinderella, one that works hard beyond her means to satisfy the family and yet, treated like a stepchild — unappreciated and oppressed.

Looking at this Cinderella phenomenon, the new management of GAPKI should more actively voice its members’ interests. Todate, there are unfair negative perceptions that the association has yet to address.

Policy-making and business interests are closely connected. Through lobbying, one can “influence the thinking of legislators or other public officials for or against a specific cause” (Accountability & UN Global Compact, 2005).

In the business world, lobbying is part of “corporate political activity”, which certain interest groups engage in when they wish to influence political processes and decisions. In this sense, it covers a wide range of activities from advertising and other forms of public communication to stakeholder engagement, commissioning research, preparing position papers, launching legal action, or contributing to election campaign financing.

Interest groups, including corporations and associations representing corporations and the industry, have the political rights to influence public officials by voicing their interests. However, this right is legitimate only if it is balanced by the obligation to act responsibly, thus balancing rights and obligations.

This can be referred to the notion of “corporate citizenship”, when companies involve themselves in the citizenship arena, exercising their rights to actively participate in societal decision-making.

Indonesia is bestowed with tropical weather, ample agricultural land, with appropriate rights to the land, attractive investment climate. Also, we have a wide talent base for all levels of management, from strategising to operational, spread across the sprawling palm oil value chain.

With all these strengths, there are many business development opportunities both in the upstream as well as down stream. Currently, we are the biggest palm oil exporter, servicing the world’s increasing appetite for cooking oil and energy.

We have friendly investment laws. The export orientation also induces sustainable palm oil-based management, with a growing adoption of international sustainable certification, servicing both established oil markets in Europe and now dominating markets in India and China.

The palm oil industry is a major contributor to the Indonesian economy supporting livelihoods that feed 3.3 million households. Yet, when it is time to exercise its legitimate rights as a corporate citizen, the palm oil industry is treated like a Cinderella.

First, there are lengthy and uncertain procedures to obtain necessary permits.
There are various permits / licenses / approvals to be obtained from various government authorities on incorporation of the company, land ownership and plantation operational licensing.
Investors, including farmers and smallholders may need a quite lengthy and costly process to obtain complete licenses. Therefore, many companies and individual investors have been opting for acquiring local plantation companies or concessions to avoid the lengthy process, assuming the locals have already obtained the licenses.

Second, there’s governance challenges.
The palm oil industry regulatory environment has been government-heavy with more revoking power and less dispute resolution. The regulatory regime gives government officials unprecedented power to revoke licenses, even for some trivial and unintentional ones.
We have no system in place for typical notification, remedy, and appeal procedures. Therefore, palm oil companies and smallholders are reluctant to be seen as “activist companies”, actively voicing their complaints on unfair treatment. This is the role that should be taken over by the industry association, to avoid any repercussion towards a single company that files complaints.

Third, since May 2011, the President has imposed forest moratoriums.
This means no licenses can be granted for about 64.2 million hectares for two years. GAPKI needs to work with the Forestry Ministry to gain clarity on potential development areas outside designated no-go areas for oil palm plantation developments.

Fourth, foreign-based environment NGOs continue to unfairly discriminate against the palm oil industry.
There’s been no substantial campaign supported by the government to counterattack the negative campaigns, like Malaysian government does for their industry.

Fifth, there is a limited supply of high quality seeds from the government’s institutions.
Once again, our neighbor Malaysia provides more encouraging examples.

Sixth, when the companies face conflicts with local communities, the government’s help is limited. Plantation companies usually have to fend for themselves.
GAPKI needs to work with relevant government agencies formulate a new rule of engagement in dispute resolutions.

The challenge for GAPKI is to establish a framework for responsible political lobbying. It needs to rethink engagement practices that foster more cohesive public policy-making, such as igniting public debate to influence decision makers, so as to prevent unnecessary and unfair regulatory environment.

Lobbying should seek to affect public policy by providing key stakeholders, notably policymakers, with options in the policy-making process. GAPKI also needs to open and extend dialogue beyond the executive arm of government or legislators to civil society organisations and open a new chapter of relationships.

GAPKI needs to work together with relevant parties and prove that lobbying can be a legitimate and valuable part of citizens’ rights in our democracy.

Lastly, GAPKI needs to spearhead efforts to create a comprehensive and visionary blueprint for the development of sustainable palm oil in Indonesia. It needs to engage with all stakeholders, particularly multi-government agencies, the private sector as well as civil society.

It is imperative for GAPKI to build resilience against internal challenges and external threats. It needs to proactively influence government policy-making that is supportive of the palm oil industry via responsible lobbying.

Felda to talk to SC on KPF role in listing

April 24, 2012 Leave a comment
This is written  by my colleague Zaidi Isham Ismail.

KUALA LUMPUR: Federal Land Development Authority (Felda) will talk to the Securities Commission (SC) in the next few days on how to include Koperasi Permodalan Felda (KPF) as one of the shareholders in the upcoming listing of Felda Global Ventures Holdings Bhd (FGVH).

Felda chairman Tan Sri Mohamed Isa Abdul Samad said Felda’s management would meet with the SC to discuss the next plan of action now that KPF members had agreed to take part in FGVH’s initial public offering (IPO).

“We plan to meet SC officials in the next two to three days. I don’t want to jump the gun but we will call a press conference soon,” Mohamed Isa told Business Times yesterday.

KPF was initially slated to participate in the listing but the plan was derailed by three court injunctions, which prevented the settler investment cooperative from holding extraordinary general meetings (EGMs).

The EGMs were aimed at seeking approval from its 220,000 members on either joining or not taking part in the IPO, said to be worth more than RM6 billion.

KPF owns 51 per cent of Felda Holdings but post listing, its assets will be injected into FGVH and ultimately, the cooperative will own a 37 per cent stake in the listed entity.

Mohamed Isa had said earlier this month regardless of KPF joining the IPO or not, FGVH’s listing slated for June would proceed.

But last Thurday, KPF members voted in favour of the listing of the state-linked palm oil firm, making it possible again for its direct involvement in the IPO. “Now that members have agreed, we just have to wait for the SC’s approval,” said a KPF source.

Deputy minister in charge of Felda, Datuk Ahmad Maslan, said 88 per cent of 1,250 representatives from the KPF had voted for the IPO at the extraordinary general meeting.

National Association of Smallholders Malaysia president Datuk Aliasak Ambia said under cooperative rules, a simple majority was enough for the listing to go through. “We have been keen all along to join the IPO. Only the injunctions prevented us from taking part in the IPO.”

Aliasak said the meeting with the SC was to facilitate, expedite and hasten the listing so that there would not be any last-minute hurdles.

Palm oil’s ‘secret, bountiful yield’

April 22, 2012 Leave a comment
JANA Miertus’ eyes widened when she learnt that palm oil is the most consumed edible oil in the world, commanding 30 per cent market share. “It’s certainly an eye-opening revelation,” she said when briefed on the world’s production, consumption and trade of edible oils by the Malaysian Palm Oil Board (MPOB) recently.

Miertus, who is from Italy, had accompanied her husband to Malaysia recently for a working visit. She is more familiar with butter, rapeseed and olive oils as staple cooking ingredients in her kitchen.

She was part of an entourage comprising participants of MPOB’s programme advisory committee. This annual programme taps into the latest research and development trends provided by these international academicians.

One of the places of interest Miertus visited was Felda Group’s Institute Tun Abdul Razak Research Centre in Pahang.

As the crowd of 20-odd visitors gathered around Felda Group’s oil palm seed producing laboratory, a short briefing revealed that Malaysia and Indonesia produced the bulk of 55 million tonnes of palm oil consumed in more than 150 countries all over the world as cooking oil.

“Malaysia and Indonesia are really the cooking oil bowls of the world. Of the 17 major edible oils in the world, palm oil is the most popular,” a Felda official said.

Citing figures from leading industry journal Oil World, he said that last year, world exports of all vegetable oils stood at 68.21 million tonnes. Of that total, palm oil accounted for 61.3 per cent of global market share while rivals like soya oil only command 10 per cent and rapeseed oil, five per cent.

He went on to explain that palm oil, which is is extracted from the fruits of oil palm trees, thrives well in the tropics where there is a lot of rain and sunshine.

An oil palm tree bears between 10 and 12 fruit bunches annually, each weighing around 25kg and containing 1,000 to 3,000 fruitlets. These fruitlets are dark purple, almost black. They turn orange-red when ripe.

Like olive, the oil palm fruit is unique in that it produces two oils. Palm oil is obtained from the fleshy part of the fruit and palm kernel oil from the seed.

Apart from Malaysia and Indonesia, oil palm trees are also cultivated in Papua New Guinea, Central and West Africa, and Latin America, all of which are developing countries in the humid tropics. “Did you know that oil palm trees are planted by some 10 million farmers across the equatorial belt of the globe?” the Felda official asked.

“The oil pressed from the fruits are processed into cooking oil and shipped across the oceans to nourish billions of people in China, India and other developing nations.”

The Felda official then explained that developing nations were heavily reliant on the oil palm tree as a source of nutrition because the crop thrives in tropical climates and yields more fats and calories than other options. It gives the developing world — where hundreds of millions of people still live on a couple of dollars a day — the most caloric bang for the buck.

His briefing elicited nods of approval among the visiting crowd.

After lunch, the entourage made their way back to the Kuala Lumpur City Centre. 

There, they met up with Crabtree & Evelyn Malaysia marketing communications manager Teoh May May and discovered the wonders of palm oil vitamin E.

She explained that Vitamin E, an essential nutrient for the body, is made up of four variants of tocopherols and another four called tocotrienols. 

Tocopherols are mainly sourced from oilseeds such as soya oil, canola and sunflower, while tocotrienols are only found in abundance in palm oil and rice bran oil.

As one walks out into the sun, Teoh said skin cells exposed to ultra-violet (UV) rays generate huge amount of superoxide radicals in our body, causing serious damage to surrounding cells. Prolonged and extensive cell damage surface as wrinkles on the skin.

Would a regular vitamin E-enriched moisturiser help? Teoh shook her head.

“Currently, what most face creams, body butters and moisturisers in the market offer is tocopheryl acetate, a derivative of common vitamin E tocopherols. There is not much benefit. 

“The only advantage is tocopherols being a preservative for the product, increases the shelf life while allowing a claim that it contains vitamin E,” she added.

“Our bestseller hand therapy range contains the active ingredient tocotrienols.” She then pointed to an array of Crabtree & Evelyn moisturisers and said: “Tocotrienols are a superior form of Vitamin E that can truly boost sunscreen efficiency by reducing UV-ray penetration.”

Teoh foresees that many more skincare companies will soon start to incorporate palm tocotrienols in their formulations, even though they cost up to 10 times more than tocopherols.

This is because research has proven that tocotrienols are 60 times more effective than tocopherols in protecting the skin from the damaging effects of overexposure to UV-rays, pollution, stress and smoking.

Higher allocation for oil palm smallholders

April 20, 2012 3 comments
BANGI, Selangor: SMALLHOLDERS who want to plant oil palms, be it replanting or new plantings, are now entitled to a higher allocation from the government.

Those who own 40ha or less are eligible for the replanting grant. As for new plantings, the incentive can only be accorded to those who own up to five hectares in Peninsular Malaysia and a maximum of seven hectares for Sabah and Sarawak.

Previously, the government allocated RM7,000 per hectare to smallholders who plant up oil palms. This one-off grant is actually a small token of gratuity to help pay for the planting up costs.

Now, the government has raised the allocation to RM7,500 per hectare for oil palm land in Peninsular Malaysia. As for Sabah and Sarawak, it has been raised to RM9,000 per hectare.

In an interview yesterday, Malaysian Palm Oil Board (MPOB) director general Datuk Dr Choo Yuen May said: “The Plantation Industries and Commodities Minister has approved the new rate to be backdated to January 2011.”

“This means smallholders who had previously been approved of the RM7,000 per hectare, allocation will now automatically be entitled to the new rate. The actual amount, whether it is RM7,500 per hectare or RM9,000 per hectare, will depend on the location of their oil palm plantings. We urge smallholders to deal directly with MPOB and not go through other government agencies,” she told Business Times.

There are around 170,000 independent smallholders in Malaysia. With 700,000ha, they account for 14 per cent of the country’s five million hectares of oil palm land. This year, the government expects smallholders to plant up 40,000ha, with higher yielding seedlings.

The concerted effort by the government to help smallholders replant is meant to raise the annual national oil yield, which has been stagnating at below four tonnes per hectare over the last two decades.

Choo also highlighted that smallholders who rely solely on planting oil palms are entitled to additional farming subsistence. “Smallholders who do not have any other source of income and own less than 2.5ha will also be entitled to RM500 per month subsistence for two years. This is in addition to the replanting grant,” she said.

Asked if she is optimistic of smallholders achieving the 40,000ha planting target, she said there are enough high yielding planting materials to go around. “Every year, seed producers churn out some 80 million oil palm seeds a year, of which 50 million are available to local planters,” she added.

Delima Oil hits record RM1b sales

April 20, 2012 Leave a comment
This is written by my colleague Roziana Hamsawi.

MANILA: DELIMA Oil Products Sdn Bhd, a member company of the Felda Global Group recorded its first over-RM1 billion revenue last year, well ahead of its 2013 target, said chief executive officer Zakaria Arshad.

He said based on how well the company is doing in Malaysia and in its first overseas market Myanmar, he is confident that the performance can be sustained this year.

“Last year, our sales were more than RM1 billion, an increase of 17 per cent from the previous year,” he told Business Times when met on the sidelines of the Malaysia-Philippines Palm Oil Trade Fair & Seminar here. The seminar was organised by the Malaysian Palm Oil Council and Malaysian Palm Oil Board.

He said Delima Oil, which entered the Myanmar market about a year ago, has todate registered sales of about US$10 million (RM30 million) and demand “in the last five months has been increasing”.

With such success, Zakaria said Delima Oil is now eyeing the Philippines and Vietnam markets which will most likely see Delima Oil products on their supermarket shelves this year.

“In Myanmar we are selling our palm-oil based cooking oil, margarine and shortening and are now in final discussion to set up a bottling and packaging plant there,” he said adding that the plant is a joint-venture with a local party and will cost Delima Oil about RM10 million.

He said the company is in talks with potential customers or distributors for its products in the Philippines, and may start with the Southern Philippines, due to its proximity to Sabah.

“If all goes well and our products are well accepted here, like in Myanmar we will build our own packaging and bottling plant. The next step then, is to have our own refinery on a bigger scale,” he said adding that such a strategy will be emulated in Vietnam.

Delima Oil is also in the midst of negotiating with a party in Abu Dhabi to market its cooking oil in over 90 supermarket outlets there.

Back home in Malaysia, Delima Oil is adding new machinery to its refining and packaging plant in Pasir Gudang, costing about RM20 million which will cater to the production of more products, especially the high-end ones. The new extension of the plant is expected to be ready by June this year.

“Our products are doing well in Malaysia, especially our Saji cooking oil which has over 30 per cent share of the olein segment while our margarine, Seri Pelangi holds more than 50 per cent market share. But now, we want to concentrate on high-end products as they give better margins and that means, there will be better quality margarines and other cooking oils like high grade blended oil, sunflower oil and canola oil,” said Zakaria.

Lam Soon: Buruh will cook up good sales in Philippines

April 18, 2012 Leave a comment
This is written by my colleague Roziana Hamsawi.

MANILA: LAM Soon Edible Oils Sdn Bhd expects its edible oil brand, Buruh, which just entered the Philippines market yesterday, to generate encouraging sales in the first year, as it banks on the growing popularity of palm oil here.

“We are confident our cooking oil will do well, registering double-digit growth as the Philippines consumers are becoming more discerning when it comes to choosing their cooking oil,” said Lam Soon general manager for export division Siew Yuen Heng.

Speaking to Business Times after the launch of the product by Plantation Industries and Commodities Minister Tan Sri Bernard Dompok at the S&R shopping store here yesterday, he said Buruh would be the only cooking oil from Malaysia being sold at S&R outlets, competing with other local brands.

“Since we first came here with our household and personal care products back in 1998, the number of Lam Soon products being sold in the Philippines has grown and our best-selling product is our powder detergent, Bio Zip,” he said.

Siew added that the Philippines is an increasingly important export market for Lam Soon and he is confident that more Lam Soon products will enter the market in years to come. “Our good relationship with our distributor S&R will be the catalyst for our growth here,” he said, declining to provide an estimate of the growth the company is targeting.

S&R is an upscale membership shopping store with a bulk of its products from the US. It has six outlets across the Philippines and over 180,000 members.

Siew said just as Buruh cooking oil is one of Malaysia’s trusted edible oil brands, Lam Soon aims to make it a favourite here too. “Buruh Cooking Oil has been the consecutive winner of Reader’s Digest Trusted Brand (Gold award) since 2006 and with its halal certification, ISO9001 and HACCP recognition, we are committed towards food safety, quality and environmental protection,” he said.

S&R owner Susan Co, meanwhile, said Lam Soon products sold in her stores are selling well because of their quality and attractive packaging. “We have no doubts that this Buruh cooking oil, which is suitable for Asian cooking, especially for deep-frying multiple times will do well,” she said.

Meanwhile, Dompok in his speech at the launch said Malaysia is expected to produce 19 million tonnes of crude palm oil this year and 18 million tonnes will be for the export market.

He said Malaysia has an abundant supply to meet the requirements of international markets and the Philippines, he added, is more than welcomed to increase their import. Palm oil, added Dompok, not only produces the least expensive vegetable oil, it is also the most versatile oil that can be used in various food applications and in non-food products such as oleochemicals, soaps and biodiesel.

Also present at the launch yesterday were Malaysian ambassador to the Philippines Datuk Seri Ibrahim Saad, Malaysian Palm Oil Council chairman Datuk Lee Yeow Chor and chief executive officer Tan Sri Yusof Basiron.